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Growth speeds up as PMI hits 16-month high

China’s manufacturing activity strengthened to a 16-month high in August, better than expected and an indication that growth momentum is accelerating.

The official Purchasing Managers’ Index, a comprehensive gauge of operating conditions in industrial companies, increased to 51 last month, the China Federation of Logistics and Purchasing said yesterday. The pace advanced from July’s 50.3 and June’s 50.1, and was the fastest since April 2012.

A reading above 50 is expansion, and July was the 11th consecutive month in which the index was above this level.

“The manufacturing sector recovered quickly,” said Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd. “The acceleration was thanks to faster implementation of the fiscal program and the mini stimulus initiated by the central government.”

Supportive measures, including tax reductions for small companies, more investment in railway and other infrastructure construction as well as less red tape for exporters, have been adopted to strike a balance between short-term growth stability and medium-term risk mitigation.

Zhu Haibin, chief economist for China at JPMorgan, said the PMI reading suggested economic conditions were improving.

But he pointed out that “the recovery is mainly related to large enterprises, while small companies are still facing a challenging business environment.”

Breakdown by type of firms showed that the large enterprise PMI rose to 51.8 last month, up from 50.8 in July. In comparison, the medium-sized enterprise PMI stayed flat at 49.6 and the small enterprise PMI fell by 0.2 points to 49.2.

Other components showed that production picked up to 52.6 in August, up from 52.4 a month earlier. New orders jumped by 1.8 points to 52.4, and inventories of raw materials rose to 48, compared with 47.6 the previous month.

The input price index gained strongly by 3.1 points to 53.2, reflecting a recent rebound in onshore commodity prices and strengthened demand.

China’s economy has exhibited signs of stronger performance in the past two months, with July’s trade, industrial production, fixed-asset investment, retail sales and foreign direct investment figures all better than expected.

The HSBC Flash China Manufacturing PMI, a preview of the HSBC PMI which is weighted toward private and export-oriented manufacturers, touched a four-month high of 50.1 in August, stabilizing on the back of modest improvements in new business and output. Its final reading will be released today.

Qu Hongbin, chief economist for China at HSBC, said earlier fine-tuning measures will further filter through, to the benefit of China’s growth in the coming months.

Last week, National Bureau of Statistics spokesman Sheng Laiyun said China was on track to fulfil its growth target of 7.5 percent this year.

JPMorgan yesterday revised its forecast for third-quarter growth to 7.6 percent, bringing its whole year projection to 7.6 percent, up from 7.4 percent.




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