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Home » Business » Finance

Factories pick up the pace in August

By Leng Cheng | September 2, 2016, Friday | Print Edition

CHINA’S manufacturing activity expanded at its fastest pace in nearly two years in August, according to figures released yesterday, but private manufacturers posted data that was weaker than expected.

The Purchasing Managers’ Index, which mainly tracks large state-owned companies, rose to 50.4 last month, according to the National Bureau of Statistics, its highest reading since October 2014.

The Caixin China General Manufacturing PMI survey, focusing on small and medium-sized firms, came in at 50 last month compared to July’s 50.6 reading. A third survey, meanwhile, revealed the official services PMI fell to 53.5 in August, down from 53.9 in July. Figures above 50 indicate growth.

“This data suggests the forthcoming industrial production and export data for August may improve somewhat,” Australia and New Zealand Banking Group said in a research note. “The improved business conditions should offer some relief for some industries in the course of capacity reduction.”

Zhao Qinghe, a senior analyst at NBS, said: “August is the beginning of China’s manufacturing peak season, and we expect the official PMI will go higher in the coming months.

“High-tech and consumer goods are doing well. It’s a positive sign that China’s manufacturing is changing from the low-value-added end to the higher one.”

But there are concerns the gains aren’t shared equally, analysts said, as the different performances by firm size reflects a deteriorating business environment for smaller enterprises with credit risks in the segment likely to increase. Among small and medium-sized manufactures, production and new orders both rose at slower rates while export sales continued to decline in August, Caixin said, calling current operating conditions “stagnant.”

“The big question is where growth momentum on a sequential perspective is going over the next few quarters. There’s still a lot of uncertainty,” said Zhu Haibin, chief China economist and head of China economic research at JP Morgan.

He added that a depreciating yuan and tepid global demand continued to weigh on Chinese factories.

The “stagnant” status of economic stability was also partly due to a short-term tightening up of fiscal support, Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, said in a note after the PMI report.

“China’s economy is still facing downturn pressure in aspects such as external demands, property market and production reduction,” Zhong said. “A relatively loose fiscal policy is needed to maintain a stabilized economy.”

While the government has said several times that a large-scale monetary stimulus is unlikely this year and extra loosening is not needed at present, analysts warn that falling private investment and volatile housing policies should be the next things to worry about.

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