China’s manufacturing activity expansion rose to its highest in six months in August, bolstered by greater foreign demand that sent export sales growing at the fastest rate in more than seven years, a survey by Caixin showed Friday.
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 51.6 last month from 51.1 in July. A number above 50 indicates expansion, while anything below 50 points to contraction.
August’s reading marked the third-straight month of expansion and was the best result since February.
Export sales posted the sharpest increase since March 2010 on the back of what surveyed Chinese manufacturers described as a broad-based upturn in foreign demand. As a result, total new orders in August, which have been expanding for more than a year, rose at their fastest pace in 37 months, the survey showed.
The sustained growth in new work led companies to continue to increase output last month — at a rate only marginally lower than July’s, which was the quickest pace since February.
Accelerated production in turn drove manufacturers to beef up their buying, with the sub-index of quantities of purchases climbing to 52.7, the same level as the previous high reached in July 2014.
The growing demand for raw materials intensified inflationary pressures in August, with input costs soaring at the fastest rate in five months and the output price increase reaching the strongest seen this year.
Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin Insight Group, said the August PMI showed overall operating conditions improved further in the manufacturing sector.
However, “if prices rise too quickly, the profitability of companies in the middle of the supply chain may come under pressure,” he warned.
Robust exports helped support China’s economic growth in the second quarter, which was unchanged from 6.9% reached in the January-March period, yet stronger than what the market had expected.
But whether the boost from exports will continue isn’t clear due to a strengthening yuan and China’s growing trade tensions with the U.S., its biggest overseas market.Expansion in exports moderated in July, marking its first deceleration in three months, according to previously published official figures.
Some analysts have also pointed to a slowdown of the property sector and related activities — as well as a possible dampening of infrastructure investment due to Beijing’s tightening policy to rein in local government debt — as risks that may drag on economic growth in the rest of 2017 and the next year.
Nonetheless, the Caixin survey showed companies became more optimistic in August about their business prospects over the next 12 months, with the future output sub-index rising to a five-month high.
That said, payroll cuts continued anyway in August, albeit at a slightly slower pace, as firms sought to improve efficiency and were slow in hiring replacements for staff who quit.
The sample base of the survey, sponsored by Caixin and compiled by international information and data analytics provider IHS Markit, covers more than 500 manufacturing companies.
The official manufacturing PMI, released by the National Bureau of Statistics on Thursday, came in at 51.7 in August, up from 51.4 in July.
The Caixin China General Services Business Activity Index is scheduled to be published on Tuesday.