Manufacturing Activity Continues to Pick up
China’s manufacturing sector in September expanded at the fastest pace in more than five years, adding to evidence of a resilient broader economy.
The manufacturing purchasing managers’ index (PMI) came in at 52.4 last month, up from 51.7 in August and 51.4 in July, according to the National Bureau of Statistics (NBS). A reading above 50 indicates expansion, while one below reflects contraction.
Having stayed in positive territory for a 14th straight month, the reading marked the highest level since May 2012.
The indicator showed a stable upward trend in the manufacturing sector, said NBS statistician Zhao Qinghe, attributing the quickened expansion mainly to improving demand both at home and abroad and booming hi-tech industries.
Sub-indices for production and new orders came in at 54.7 and 54.8 respectively, up from 54.1 and 53.1 in August.
This suggested a better supply-demand relationship, as orders surpassed production for the first time this year, Zhao said.
Equipment and hi-tech manufacturing reported more rapid expansion, with their respective PMI figures at 53.3 and 52.9. The production of automobiles, electrical appliances and other electronics saw the biggest increases.
Robust consumption in food, beverages and clothing ahead of the National Day and Mid-Autumn Festival holiday (October 1-8) also contributed to the performance.
The stronger-than-expected factory activity helped brighten market sentiment, as pessimistic analysts were betting on a loss of momentum in the Chinese economy, which had held steady in the first half of the year against lingering headwinds.
“With the notable pickup, the index is substantially higher than the market expectations of 51.6... indicating steady demand,” Beijing-based investment bank CICC said in a report.
“Over the short term, we believe the resilient demand growth and disciplined balance sheet expansion in secondary industries will point to further improvement in manufacturing profitability and investment returns,” said the report.
China’s economy expanded 6.9 percent in the first six months, well above the target of around 6.5 percent for the whole year.
However, the manufacturing sector is not completely free of weakness and challenges, at least not for small firms more vulnerable to economic changes.
The divergence between industrial giants and small manufacturers widened. While large companies sat comfortably above the boom-bust line with a PMI reading of 53.8, small ones were still in contraction territory despite a mild recovery.
More than 40 percent of manufacturers surveyed were worried about price hikes in raw materials, especially those in downstream sectors. Indices of purchasing costs in the printing, furniture and chemical industries surpassed 75 to reach high levels.
The monthly NBS manufacturing PMI tracks the activity of 3,000 businesses from 31 sub-sectors on the Chinese mainland based on orders, production, employees, delivery times of suppliers, and stocks of raw materials.
The Caixin China General Manufacturing PMI stood at 51 in September, retreating from a six-month high of 51.6 in August, according to a survey conducted by Markit Ltd. and sponsored by Caixin Media Co. Ltd.
Analysts pointed out the NBS and Caixin surveys represent different aspects of the manufacturing sector: While the NBS result comes from a wide range of companies scattered around the country, the Caixin index, which samples 500 manufacturers, mainly focuses on small businesses.
The Caixin index is more volatile as its survey is more reliant on export-oriented small and medium-sized businesses in coastal areas, which can be more easily influenced by global impacts, said Li Chao, a research fellow at Huatai Securities Co. Ltd.
Despite short-term disagreements between the two surveys, analysts agree that they point to the same trend in the economy in the long run.