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Thursday, September 1, 2016, 10:43

China's factory activity expands in August

By Agencies

China's factory activity expands in August
Chinese workers check carbon fiber silk thread at a carbon fiber factory in Lianyungang, in eastern China's Jiangsu province on Au g 1, 2016. (STR / AFP)
BEIJING - Activity in China's manufacturing sector unexpectedly expanded in August, though growth was modest, an official survey showed on Thursday.

The official Purchasing Managers' Index (PMI) rose to 50.4 in August, compared with the previous month's 49.9 and above the 50-point mark that separates growth from contraction on a monthly basis.

A private survey released Thursday - the Caixin General China Manufacturing Purchasing Managers' Index (PMI), an indicator of manufacturing activity, dropped to 50 in August from 50.6 in July.

China's factory activity expands in August

The reading of 50-point is the neutral level, signalling a marginal deterioration in the manufacturing sector from the expansion in July, according to the survey conducted by financial information service provider Markit and sponsored by Caixin Media Co. Ltd.

A reading above 50 indicates expansion, while a reading below 50 represents contraction.

On the other hand, activity in China's services industry expanded again in August, but at a slightly slower pace than in the previous month, an official survey showed on Thursday.

The official non-manufacturing Purchasing Managers' Index (PMI) stood at 53.5 in August, compared to the previous month's reading of 53.9 and above the 50-point mark that separates growth from contraction on a monthly basis.

The factory output index rose to a solid 52.6 in August from 52.1 in July, and total new orders expanded significantly to 51.3, compared with July's 50.4.

New export orders continued to fall but at a modest pace. The index was 49.7, up from 49.0 in July.

China's factory activity expands in August
Source: National Bureau of Statistics

Factory activity in China recovered slightly in the first quarter thanks to increased government spending and a housing boom, but has been on a mild downward trend since.

Profits earned by China's industrial firms grew the fastest in four months in July, aided by improving sales and reduced costs, data showed on Saturday, with government projects possibly helping to ease financial strains for some companies.

However, a government spokesperson said after the profit data that an obvious improvement in demand is still not in sight.

The profit gains may be due more to rebounding prices for commodities such as steel and other building materials than a sustained improvement in actual demand.

To curb air pollution, Beijing ordered hundreds of industrial plants to close ahead of China's first summit of G20 leaders in Hangzhou next week. That may have encouraged some producers to boost output ahead of time.

In another sign that business conditions remain tough, factories continued to cut staff, though at a slightly slower pace. The employment sub-index edged up to 48.4, compared to 48.2 in July but still in contraction territory.

China has vowed to quicken the pace of cutting excess steel and coal capacity in coming months after falling behind this year, raising the risk of more layoffs and debt defaults, which could further strain the banking system.

The PMI survey also showed larger companies were outperforming smaller ones, highlighting imbalances in the economy. A sub-index for smaller firms stood at 47.4, while one for larger companies was 51.8.

The government has depended on big state firms for growth this year as private investment cools rapidly.

A similar business survey showed activity in China's services sector continued to expand, though at a slightly more modest pace. The official services reading was 53.5 in August, compared with 53.9 in July.

A measure of the construction industry grew at a slower pace with a reading of 58.2, still robust but down from 61.1 in July.

China is counting on growth in services to offset persistent weakness in manufacturing and exports that has helped drag economic growth to a 25-year low.

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