China private factory activity expands in August, easing growth worries

PUBLISHED : Tuesday, 03 September, 2013, 12:00am
UPDATED : Tuesday, 03 September, 2013, 3:37am

China's private-sector factory activity expanded for the first time in four months last month as domestic demand rebounded, a survey showed yesterday, the latest sign that the world's second-largest economy may have avoided a sharp slowdown.

The final Markit/HSBC purchasing managers' index (PMI) climbed to 50.1 in August, up sharply from July's 47.7 and in line with last week's flash preliminary reading.

The survey came a day after China's official manufacturing PMI showed factory activity expanded at the fastest pace in more than a year last month, with a jump in orders.

Economists cheered the upbeat data as a sign that China's economy, which has cooled in 12 of the last 14 quarters, is finally steadying.

"We are definitely stabilising, but it's going to be a pretty weak to flat recovery," said Stephen Green, an economist at Standard Chartered.

Asian shares climbed to a two-week high and the Australian dollar and copper gained after the report.

The official PMI, which came in at 51 versus expectations for 50.6, is more weighted towards bigger and state-owned firms, which have easier access to credit and the scale to cope better with downturns than the smaller private firms that form the backbone of the Markit/HSBC survey.

As recently as a month ago, investors had worried that China's economy was slipping into a deeper-than-expected downturn, especially after its money market was hit by an unprecedented cash crunch in June.

But policymakers have stepped in with a series of measures aimed at stabilising the economy, including quickening railway investment and public-housing construction and introducing policies to help smaller companies with financing needs.

Senior officials have also been talking up the economy, saying there are clear signs of stabilisation emerging and that the government's annual growth target of 7.5 per cent is achievable.

Data for July had showed a pick-up in trade and industrial output, while foreign investment into China also quickened, adding to confidence in the nation's economy.

However, any expectations for a strong rebound may be misplaced. As a PMI reading above 50 indicates growth, while one below 50 demarcates contraction, the latest Markit/HSBC data suggests August's expansion was only modest.