Surprise pickup for China's manufacturing in August

An energy-saving bulb production line at a lighting factory in Suining, south-west China's Sichuan province. The country's official factory readings indicated that the global economy remains on solid footing for now, despite concerns that growth may
An energy-saving bulb production line at a lighting factory in Suining, south-west China's Sichuan province. The country's official factory readings indicated that the global economy remains on solid footing for now, despite concerns that growth may begin to fade in the coming months.PHOTO: AGENCE FRANCE-PRESSE

BEIJING • Growth in China's manufacturing sector unexpectedly accelerated last month, suggesting the world's second-largest economy is still expanding at a healthy clip despite rising financing costs and a cooling housing market.

Along with stronger United States economic growth reported overnight, China's official factory readings indicated the global economy remains on solid footing for now, despite concerns that growth may begin to fade in the coming months.

China's resilience so far this year has surprised economists. It has given an extra boost to a global recovery despite Beijing's crackdown on riskier types of lending and tougher curbs to get the overheated housing market under control.

The official Purchasing Managers' Index (PMI) released yesterday rose to 51.7 last month from the previous month's 51.4, confounding economists' expectations for a marginal decline.

Production, total new orders and business expectations all shifted into higher gear, while a separate industry survey showed activity in the steel sector expanded at the fastest pace since April last year, thanks to a year-long, government-led construction boom.

In particular, ANZ said, a sharp pickup in input prices bodes well for resource companies' earnings and investment in coming months. "The price-driven recovery will continue at least in the third quarter", said Mr Raymond Yeung, Greater China chief economist for ANZ in Hong Kong. "On the demand side, infrastructure spending and fixed asset investment continue to maintain (at decent levels)... I see no reason for a sharp downturn even after the fourth quarter this year."

The sustained rally in industrial commodities' prices largely reflects stronger demand for building materials and government efforts to reduce excess capacity by shutting inefficient and heavily polluting mines and mills.

  • 51.7

    The official Purchasing Managers' Index released yesterday rose last month from the previous month's 51.4.

    53.4

    A separate official reading on China's services sector showed expansion slowed last month from 54.5 in July.

China's economy grew by a faster-than-expected 6.9 per cent in the first half, with resurgent exports and robust retail sales adding to the momentum from the infrastructure building spree and record lending by state-controlled banks last year.

China watchers still maintain the economy will start to lose some altitude eventually, as higher financing costs for companies and home owners start to drag on activity.

But they do not foresee a sharp slowdown, especially as the government is keen to ensure stability ahead of a once-in-five-years Communist Party leadership reshuffle in the autumn.

After a strong start to this year, the government looks certain to comfortably meet or beat its full-year growth target of around 6.5 per cent.

A separate official reading on China's services sector showed expansion slowed to 53.4 last month from 54.5 in July, the slowest pace of growth since May 2016, but still comfortably above a reading of 50, which separates growth from contraction.

China's leaders are counting on growth in services and consumption to rebalance their economic growth model from its heavy reliance on investment and exports.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 01, 2017, with the headline 'Surprise pickup for China's manufacturing in August'. Print Edition | Subscribe