China’s factories had their best growth in months in August as domestic demand made up for weak exports, though lacklustre performances from other regional manufacturers tempered hopes that Asian workshops are on the edge of a solid recovery.
An HSBC purchasing managers’ index (PMI) showed on Monday that China’s manufacturing sector grew in August for the first time in four months. A similar official survey released on Sunday showed sector growth hit a 16-month high last month.
The two reports stirred hopes that the world’s second-largest economy may finally be steadying after slowing down in 12 of the past 14 quarters, cheering Asian investors who pushed regional stock markets to a two-week high.
“We are definitely stabilising, but it’s going to be a pretty weak to flat recovery,” said Stephen Green, an economist at Standard Chartered, referring to China’s vast factory sector.
But relief that China may have dodged a sharp slowdown was moderated by investor apprehension that times remain tough, especially as other Asian factories foundered.
Indian factory activity shrank in August for the first time in more than four years, adding to the country’s deepening economic malaise.
A government report on Friday showed that India’s economic growth in the April-to-June quarter slowed to 4.4 per cent, the weakest pace since 2009, as both mining and manufacturing shrank.
Other PMI surveys showed the factory sector in South Korea, Asia’s fourth-largest economy, contracted for the third consecutive month in August, while manufacturing activity in Indonesia - Southeast Asia’s largest economy - also shrank as the index hit a 15-month low.
The final Markit/HSBC China PMI climbed to 50.1 for August, a whisker above the 50-point level that separates an expansion from a contraction in activity compared with the previous month.
The government PMI, which focuses more on big factories, was slightly more upbeat, in part because large manufacturers have better credit access and scale to cope with downturns. The PMI reading beat market expectations, rising to 51.
Yet both surveys indicated sluggish exports remained an Achilles’ heel for China’s economy. Export orders in the HSBC survey were shown deep in contraction territory, while the official PMI showed export demand growing modestly at 50.2.
HSBC said factories had cited anaemic demand from the United States and Europe, China’s top two export markets.
Recent US and European data had painted a mixed picture of western economies. US consumer spending was shown to have barely risen in July. A flash PMI reading for the euro zone showed activity accelerated faster than expected in August, with the index bouncing to 51.7.
The final PMI reading for the euro zone is due to be released later on Monday, while the US Institute of Supply Management is set to publish its bellwether PMI for US factories on Tuesday. A Reuters poll showed the index is expected to slip to 54 from July’s 55.4.
The reports come as investors worry about how a gradual exit from super loose monetary policy by the US Federal Reserve could destabilise regional economies that have absorbed big capital inflows in the past few years.
Indonesia, whose rupiah currency has fallen to its lowest in over four years as investors sold it ahead of an expected Fed policy change, suffered an “overall deterioration” in its manufacturing sector last month, HSBC said.
The bank said Indonesian factories smarted from poor demand at home and abroad, and that the falling rupiah - now Asia’s second-worst performing emerging market currency after the Indian rupee - had lifted raw material prices for manufacturers.
To cope with weaker business conditions, Indonesian factories retrenched workers in August for the first time in five months, HSBC said.
In South Korea, the PMI edged up to a seasonally adjusted 47.5 in August from July’s 10-month low of 47.2, but still well under the 50-point growth mark. A sluggish global economy, worsened by falling demand from the Middle East as a result of the region’s political unrest, had dragged on growth, HSBC/Markit said.
“Members reporting a decline reasoned that this was largely due to the global economic slowdown,” Markit Economics said in a statement.
But other heavyweight Asian electronic makers fared better. Taiwan’s PMI suggested its factories stabilised in August as the index rose to 50 from 48.6 in July. Worryingly, however, firms cited soft demand from China, Europe and the United States, HSBC said.
Japanese manufacturers bucked the trend by posting the strongest growth. A PMI survey on Friday showed activity grew in August for the sixth consecutive month, as machinery and consumer goods makers increased output on solid domestic demand.