China Manufacturing PMI Growth Slows, Shows Uneven Economic Recovery

(Source: CITIC Heye Investment)

China’s manufacturing industry grew at a slower pace in August, with the official manufacturing Purchasing Managers’ Index (PMI) falling slightly to 51 in August from 51.1 in July, the National Bureau of Statistics (NBS) showed on Monday.

A reading above 50 indicates expansion, while a reading below means contraction. It is the sixth month in a row that the figure remained in the expansion territory.

China’s economy has continued to recover as the pandemic prevention and control work and social development has achieved remarkable results, said Zhao Qinghe, a senior statistician with the NBS, in a separate statement.

China-based securities company CITIC Securities pointed out that although manufacturing PMI this month has dropped by 0.1%, the overall trend of prosperity will not change, especially the development of the high-tech manufacturing and equipment manufacturing industry.

Although China’s vast industrial sector is steadily returning to the pre-pandemic levels, recovery remains uneven.

A sub-index for the activity of small firms stood below 50 at 47.7 in August, down from July’s 48.6. What’s more, more than half of the small firms reported insufficient market demand and over 40% of them reported financial strains, Zhao said in the statement.

“In addition, some companies in Chongqing and Sichuan Province reported prolonged procurement cycle for raw materials, reduced orders and pullback in factory production due to the impact of heavy rains and floods,” Zhao said.

Chinese Premier Li Keqiang said in a July State Council speech that maintaining stable economic operation and overall social stability in the nation is difficult. “Enterprises, especially small, medium and micro enterprises, have serious difficulties in production and operation.”

The official PMI also showed the sub-index for new orders was 52, 0.3% higher than last month, and it has rebounded for four consecutive months.

When it comes to industry, the new order sub-index for industries such as pharmaceuticals, non-metal products, metal products, railway, ship, aerospace equipment, and electrical machinery equipment were all 4% higher than the previous month.

The sub-index for new export orders stood at 49.1 in August, up by 0.7% a month earlier. “The policy of stabilizing foreign trade and investment continued to make an impact, and manufacturing exports further improved,” Zhao said.

The official non-manufacturing PMI, which includes services and construction sectors, rose to 55.2 from 54.2 in July, the NBS showed.

With the continuous recovery of market demand, the gap between supply and demand further narrowed, business expectations are clear and optimistic, CITIC Securities said.

But some analysts fear that the recovery could stall, hurt by rising tensions between Washington and Beijing and as another wave of local infections returns in winter. Moreover, the continued rise in the number of COVID-19 cases across many countries, led by India and the United States, remain a risk to the outlook, Reuters reported.

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Future policies are expected to be more targeted to reduce financial burdens, stabilize jobs, and expand employment, according to CITIC Securities.

PMI is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It is derived from monthly surveys of private sector companies. The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.