• China factory growth speeds up in August
BEIJING (Reuters) – Growth in China’s manufacturing sector unexpectedly accelerated in August, suggesting the world’s second-largest economy is still expanding at a healthy clip despite rising financing costs and a cooling housing market.
Along with stronger US economic growth reported overnight, China’s official factory readings indicated the global economy remains on solid footing for now, despite concerns that growth may begin to fade in coming months.
China’s resilience so far this year has surprised economists and given an extra boost to a global recovery despite Beijing’s crackdown on riskier types of lending and evertougher curbs to get the overheated housing market under control.
The official Purchasing Managers’ Index (PMI) released yesterday rose to 51.7 in August from the previous month’s 51.4, confounding economists’ expectations for a marginal decline.
Production, total new orders and business expectations all shifted into higher gear, while a separate industry survey showed activity in the steel sector expanded at the fastest pace since April 2016 thanks to a year-long, government-led construction boom.
In particular, a sharp pickup in input prices bodes well for resource companies’ earnings and investment in coming months, ANZ said.
“The price-driven recovery will continue at least in the third quarter”, said Raymond Yeung, Greater China chief economist for ANZ in Hong Kong.
“On the demand side, infrastructure spending and fixed asset investment continue to maintain (at decent levels)...I see no reason for a sharp downturn even after the fourth quarter this year.”
The sustained rally in industrial commodities’ prices largely reflects stronger demand for building materials and government efforts to reduce excess capacity by shutting inefficient and heavily polluting mines and mills.
Demand is so robust that futures prices for steel reinforcing bars used in construction have surged nine percent this month and more than 50 percent this year.
Output prices also rose at the fastest pace since December, indicating strong pricing power for producers, which should fatten profit margins and give firms extra breathing room in the country’s fight against a rapid build-up in debt.
“We expect domestic steel production and sales to remain strong in September, with market prices remaining elevated,” the China Federation of Logistics & Purchasing (CFLP) said in survey on the sector.
China’s economy grew by a faster-than-expected 6.9 percent in the first half, with resurgent exports and robust retail sales adding to the momentum from the infrastructure building spree and record lending by state-controlled banks last year.
China watchers still maintain the economy will start to lose some altitude eventually, as higher financing costs for companies and homeowners start to drag on activity.