ALBAWABA – Although it remains below the contraction threshold, China’s factory activity picked up slightly in August, sparking hope that the world’s second-largest economy will soon begin to recover, news agencies reported.
The latest China manufacturing purchasing managers’ index (PMI), for August, rose to 49.7, topping estimates and edging closer to the 50 points threshold, Bloomberg reported.
According to Reuters, forecasts placed the august manufacturing PMI at 49.4.
PMI scores reflect the state of the industry or sector. Below 50, the sector’s activities would be shrinking, and vice versa.
New export orders improved as China’s factory activity picked up slightly in August - Shutterstock
Manufacturers in China have been struggling for months due to a slump in global demand and weaker domestic spending, with policymakers reluctant to roll out massive stimulus packages. Even as some economic estimates suggest that China will not be able to achieve its growth target of about 5 percent this year.
Several new China stimulus packages were enacted in the past couple of months, but none big enough to induce a boom in domestic demand.
New orders picked up for the first time in five months and factory owners indicated that producer prices were improving for the first time in seven months, according to Reuters.
Overall, the composite PMI, including both manufacturing and non-manufacturing activity, rose to 51.3 from 51.1.
Service sector drops further as China’s factory activity picked up slightly in August
However, the services sector continued trending downwards in August, as the non-manufacturing PMI, which incorporates sub-indexes for service sector activity and construction, fell to 51.0 from July's 51.5, Reuters reported.
Construction and other service sector indexes slide as China’s factory activity picked up slightly in August - Shutterstock
After a slow start, China’s outbound tourism has been recovering steadily, overall, according to Bloomberg, but the recovery varies significantly across destinations. Traffic to many long-haul destinations is still down heavily compared to pre-COVID stats, especially where political friction also plays a role.
Further weakening in the services sector, especially in tourism, could lead to disappointment in many other economies, especially Asian ones. Many markets are banking on a recovery of Chinese tourist arrivals to boost their own, Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings, told Bloomberg.
Overview as China’s factory activity picked up slightly in August
An index of new export orders improved slightly to 46.7 but remained in contraction for a fifth straight month, as suppliers’ delivery times increased to 51.6 from 50.5.
In Shanghai Volkswagen's car factory, new cars are being produced on the assembly line on March 1, 2016 - Shutterstock
Improvement in factory figures is also positive for global commodity markets and capital goods producers, Kuijs said, as investment and industry are more import-intensive than consumption.
A gauge of onshore stocks fell 0.5 percent as of 2:15 p.m., as reported by Bloomberg, while Chinese shares in Hong Kong lost 0.2 percent, reversing a morning gain of 1.2 percent. China’s 10-year government bond yield was little changed at 2.58 percent.
