Both China’s manufacturing and services industries continued to show recovery in September, data released on Wednesday showed.
China’s official manufacturing purchasing managers’ index (PMI) stood at 51.5 in September, with a reading above 50.0 signifying growth in factory output. This was an above the reading of 51.0 for August, and also above the median expectations in a Bloomberg survey for a rise to 51.3.
Caixin/Markit manufacturing PMI, which focus in more small, private firms unlike the official index which focuses on more larger, state-owned firms, fell slightly to 53.0 in September from 53.1 in August and below the Bloomberg survey expectation for an unchanged reading.
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The official non-manufacturing PMI, which measures sentiment in the services and construction sectors, stood at 55.9 in September. This was an above the reading of 55.2 for August, and also above the median expectations in a Bloomberg survey for a decline to 54.7.
The official manufacturing and non-manufacturing indices have showed positive economic activity for seven consecutive months.
The official composite PMI was 55.1 in September compared to 54.5 in August.
Within the official manufacturing PMI, the subindex for new export orders rose to 50.8 in September from 49.1 in the previous month, above the watershed mark of 50.0 for the first time since December.
The recovery of the service sector has accelerated. The policies of boosting consumer spending in various regions have shown effects, residents‘ willingness to consume has been increasing, and market demand has been effectively released
The subindex for imports also returned to expansion territory, rising to 50.4 in September from 49.0 in August.
But the subindex for employment remained below 50.0, although it rose slightly to 49.6 from 49.4.
Within the official non-manufacturing PMI, the business activities subindex for the construction sector was 60.2, unchanged from August, while the subindex for the services sector rose to 55.2 from 54.3.
“Although the overall manufacturing demand has improved, the industry’s recovery is still uneven. The survey results show that over 50 per cent of companies in the textile, clothing and apparel, wood processing and other manufacturing sectors reported insufficient market demand, which was higher than the overall level of the manufacturing industry, and the recovery momentum was still insufficient,” said Zhao Qinghe, a senior statistician at the National Bureau of Statistics (NBS).
“In addition, the global pandemic has not yet been fully and effectively controlled, and there are still uncertain factors in China’s imports and exports.”
“The recovery of the service sector has accelerated. The policies of boosting consumer spending in various regions have shown results, residents‘ willingness to consume has been increasing and market demand has been effectively released.”
The recovery in manufacturing has maintained its momentum in the wake of the Covid-19 epidemic, with both the supply and demand surging
Within the Caixin/Markit manufacturing PMI, manufacturers recorded a sharp and accelerated increase in total new work during September, while the rate of new order growth was the steepest recorded since the start of 2011.
Stronger external demand also helped to lift sales, with new export business expanding at the quickest pace since August 2017, while employment levels were broadly stable. The degree of positive sentiment also improved to a three-month high, with manufacturers generally confident that production will rise over the next 12 months.
“The recovery in manufacturing has maintained its momentum in the wake of the Covid-19 epidemic, with both the supply and demand surging,” said Wang Zhe, senior economist at the Caixin Insight Group.
“The subindex of total new orders rose to the highest since January 2011, helped by sharply rebounding overseas demand. The gauge for new export orders climbed to the highest in three years. The strong demand facilitated a recovery in production, with the output subindex staying high. It has been in expansionary territory for seven months in a row. Surveyed enterprises said that the fallout from the epidemic was gradually fading, and orders were rapidly increasing.”
We expect China’s official manufacturing PMI to stay around 51.0 in the near term, while the official non-manufacturing PMI may soften a bit
According to the World Bank, growth in China is expected to come in at 2 per cent this year, boosted by government spending, strong exports and a low rate of new coronavirus infections since March, but held back by slow domestic consumption.
China is also expected to be the only G20 country to show positive economic output this year, according to the Organisation for Economic Cooperation and Development.
“The higher official PMIs for both manufacturing and non-manufacturing, together with the still-solid Caixin manufacturing PMI, suggest China’s growth recovery is on track, lending support to our forecast for real [gross domestic product] growth of 5.2 per cent year on year in quarter three, up from 3.2 per cent in quarter two,” said analysts from Nomura led by chief China economist Lu Ting.
“As growth headwinds remain strong amid elevated uncertainties stemming from Covid-19 and US-China relations, we expect China’s official manufacturing PMI to stay around 51.0 in the near term, while the official non-manufacturing PMI may soften a bit.
“Beijing will most likely maintain its wait-and-see policy approach through the remainder of this year by neither easing further nor tightening.”
On Sunday, data showed the profits of large industrial firms increased 19.1 per cent in August compared with a year earlier, though this was slightly slower than the increase of 19.6 per cent in July, according to data from the NBS.
Still, in the first eight months of the year, industrial profits at China’s biggest firms fell by 4.4 per cent compared to a year earlier.
In the near term, we think fiscal support and improving foreign demand will keep activity in industry and construction strong, which in turn should shore up consumer sentiment and household spending
China’s economy shrank by 6.8 per cent in the first quarter of 2020 after the coronavirus shut down large swathes of the country, but avoided a recession after its economy grew by 3.2 per cent in the second quarter, the first major economy to show a recovery from the damage caused by the coronavirus pandemic.
“In the near term, we think fiscal support and improving foreign demand will keep activity in industry and construction strong, which in turn should shore up consumer sentiment and household spending,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“The upshot is that we are entering a period of above trend growth, which should help absorb the remaining slack in the labour market and allow for some policy tightening next year.”
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This article China’s economic recovery underlined as manufacturing, services outlook remains positive first appeared on South China Morning Post