Business: B2

Expansion rises to fastest pace in three months

Factories recover in June: survey

China’s manufacturing engine cranked back into growth mode in June, expanding at the fastest pace in three months after unexpectedly contracting in May, as new orders and production rose in a sign of a modest recovery, a private survey showed on Monday.

However, companies showed a reluctance to restock as business confidence slumped to the lowest for the year amid a government crackdown on debt risks and tightening financial conditions.

The Caixin/ Markit Manufacturing Purchasing Managers’ index ( PMI) rose to 50.4 in June, above the 50- point mark that separates growth from contraction on a monthly basis.

That was well above the 49.5 level forecast by 25 analysts in a Reuters survey, and up from May’s reading of 49.6, the first contraction recorded in 11 months.

Improved orders helped move activity into expansionary territory, even though companies noted demand still remained relatively subdued both in domestic and international markets.

Total new orders rose to 51.0 – the highest level in three months – from the previous month’s 50.3, with new export orders also rising. The rate of expansion in production also quickened in June, and the pace of job cuts eased to the slowest in three months.

Manufacturers’ confidence about the 12- month outlook for production fell to the lowest level this year, the survey showed. While businesses still remained generally optimistic, the overall mood was one of caution, underscoring challenges faced by companies as higher borrowing rates raise the costs of financing.

The Caixin readings were echoed by the official PMI on Friday, which also showed surprisingly robust growth in China’s manufacturing sector, but the official data was still much more bullish compared with the private survey which tends to focus on smaller companies.

The divergence suggests that much of China’s recent economic strength remains strongly dependent on heavy industry and continued government stimulus, benefiting mainly large State- owned enterprises, as worsening financing conditions have added to pressures on smaller companies.

Small and medium- sized companies, forming the bulk of the country’s private investors, contribute about 60 percent of China’s industrial output and create 80 percent of China’s jobs.