BEIJING (Reuters) – Chinese manufacturing activity grew at a slower rate in August as floods in southwest China disrupted production, but the facility sector has grown at a steady rate to stimulate the economy as it continues to rise from the impact of the coronavirus.
The world’s second-biggest economy has largely managed to bounce back from the health crisis, though intensifying Sino-U.S. tensions over a range of issues and the global demand outlook remain a risk factor.
The official Manufacturing Purchasing Managers Index (PMI) fell to 51 in August from 51.1 in July, according to the national Bureau of Statistics on Monday. It remained above the 50-point mark that separates the expansion from contraction monthly.
Analysts expected it to return to 51.2.
China’s vast trade sector returns to pre-pandemic levels, while repressed demand, the expansion of stimulus-driven infrastructure, and strangely resilient exports drive a recovery, but the recovery remains uneven.
However, a sub-index of small business activity stood at 47.7 in August, below 48.6 in July, with more than one share reporting a lack of market demand and more than 40% reporting monetary stress, Zhao Qinghe, the senior NBS statistician, said in a separate statement.
“In addition, some companies in Chongqing and Sichuan have reported a heavy rain and flooding effect, resulting in a prolonged source cycle of raw materials, relief in orders and a decrease in factory production.”
The official PMI, which focuses heavily on giant state-owned enterprises, also showed that the sub-index of new export orders stood at 49.1 in August, from 48.4 the previous month, suggesting a drop in the contraction trend after the COVID coup.
“The engine of expansion is now clear. Demand abroad will slowly resume and restrictions will only be eased if instances of COVID-19 disappear abroad. Until then, China will be more sustainable thanks to its own economic expansion.” said Iris Pang, Greater China lead economist at ING.
The economic signs ranging from industry to manufacturer cost a whole new recovery in the commercial sector. Profits from Chinese trading corporations rose last month to the fastest speed since June 2018, according to Thursday’s data.
SERVICES SHINE
Activity in the structure sector, a tough engine of domestic growth, also slowed in August, due to flooding in southern China. But analysts are convinced that with the retreat of torrential rains, the rise of Beijing’s infrastructure, backed by accommodative policies, would stimulate growth.
The official non-manufacturing PMI, which includes the structure sectors and rose from 54.2 in July to 55.2, the NBS survey showed.
Investment bank HSBC expects China’s economy to grow by 5.4% in the third quarter of a year, followed by 6.2% in the fourth quarter, bringing China’s expansion back to previous levels to COVID.
But some analysts are concerned that the recovery will stop, to impeduced emerging tensions between Washington and Beijing and the return of a new wave of local infections this winter. In addition, the continued increase in the number of COVID-19 cases in many countries, led by India and the United States, remains a threat to the outlook.
The economy, which grew by 3.2% in the one-year quarter, is expected to grow by 2.2% this year, the weakest in more than 3 decades.
Capital Economics senior economist Julian Evans-Pritchard said the increase in the sector advised an encouraging expansion of the recovery.
“This is consistent with our view that an investment-driven uptick would also end up strengthening customer and family confidence, keeping the overall economic recovery on track.”
(Report through Stella Qiu and Ryan Woo; edited through Shri Navaratnam)