Chinese factory activity defied expectations and posted growth in August, as per a private survey released on Friday. Manufacturers experienced a boost in new orders due to improved local demand.
The Caixin manufacturing Purchasing Managers’ Index (PMI) for August registered at 51.0, surpassing both forecasts, which anticipated a reading of 49.3, and the previous month’s reading of 49.2. A reading above 50 indicates expansion, and this marks the highest level for the Caixin PMI since February.
The resurgence in local demand, supported by ongoing monetary stimulus measures implemented by the Chinese government, offset the slowdown in overseas demand that had been affecting export-focused businesses.
The rise in new order intakes and increased client spending, driven by improving local demand, had a positive impact on employment levels and exerted upward pressure on prices in the sector, according to a statement by Caixin Insight Group.
Nevertheless, Caixin analysts pointed out that the Chinese economy still faces challenges, particularly given the deteriorating conditions in the country’s major export markets, which cast a shadow on future demand.
“Seasonal impacts will gradually subside, but the problem of insufficient internal demand and weak expectations may form a vicious cycle for a longer period of time. Combined with the uncertainty in external demand, the downward pressure on the economy may continue to increase,” wrote Wang Zhe, Senior Economist at Caixin Insight Group in a note.
The Caixin survey’s results contrast with an official PMI reading released on Thursday, which indicated that China’s manufacturing sector contracted for the fifth consecutive month in August, although at a slower pace than anticipated.
One notable distinction between the Caixin survey and the official reading lies in their focus. The Caixin survey primarily targets smaller, private enterprises, whereas the official survey includes larger, state-run enterprises.
Friday’s report underscores that China’s private sector is reaping the benefits of recent stimulus measures initiated by Beijing. These measures encompass relaxed lending conditions and consistent liquidity injections by the People’s Bank of China.
However, the Chinese economy is expected to grapple with continued challenges in the upcoming months, particularly if a real estate crisis escalates and demand in its primary markets further diminishes.
