China’s manufacturing activity was the strongest in four months in July as companies boosted inventories to meet higher demand, especially from abroad, a Caixin survey showed on Tuesday.
The Caixin China General Manufacturing Purchasing Managers’ Index (PMI) — closely watched by investors as one of the first available indicators every month of the strength of the Chinese economy — rose to 51.1 last month from 50.4 in June, the highest reading since March. A number above 50 indicates expansion, while anything below 50 points to contraction.
“Operating conditions in the manufacturing sector improved further in July, suggesting the economy’s growth momentum will be sustained,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin Insight Group. “That said, it’s unlikely that financial regulatory tightening will be relaxed.”
Zhong was referring to the government’s drive since August 2016 to contain credit risks in the financial sector, particularly the “shadow banking” industry and wealth management products, as authorities seek to direct funds away from speculation in financial markets and property and toward investment in projects that generate real economic activity.
Last month, President Xi Jinping told the National Financial Work Conference, a meeting held every five years to map out financial reform, that the financial industry must act in the best interests of the real economy and “allocate more financial resources to the key areas and weak links in economic and social development.”
The pickup in manufacturing activity seen in the Caixin survey contrasts with the decline in the official manufacturing PMI released by the National Bureau of Statistics (NBS) on Monday. The government index fell to 51.4 in July from 51.7 the previous month, the first drop since April, amid weaker foreign demand for Chinese goods and slower growth in output.