A gauge of China’s manufacturing sector jumped to a 16-month high in August as the economy rallied with government policy support.
The official Chinese purchasing managers’ index climbed from 50.3 in July to 51 in August, topping most forecasts for the second straight month. Readings above 50 indicate an expansion in activity.
After a shaky half year for the Chinese economy, the strong PMI results bode well for the coming months.
“The data continued to beat expectations. It’s good news. It suggests that the economic recovery is improving,” said Zhu Haibin, an economist with JPMorgan. “It’s moving from downside risks to upside risks.”
Analysts have pointed to two main factors for the upturn. First, credit growth surged at the start of the year, and that wave of financing is now translating into real economic activity.
Second, over the past three months, the government has provided a “mini-stimulus”, cutting taxes for small businesses, supporting exporters and, above all, boosting investment in rail and infrastructure.
Liu Ligang and Zhou Hao, economists with ANZ, calculated that 58 per cent of the government’s full-year budget will be spent in the second half of the year.
Adding to the optimism, the PMI index for new orders – a leading indicator for the economy – jumped to 52.4, from 50.6 in July. The rise reflected not only strong domestic demand, but an improvement in external demand as the index for new export orders rose from 49 to 50.2.
Nevertheless, the PMI still revealed a sharp divergence in fortunes across China’s vast economy. The PMI for big businesses was 51.8, but smaller businesses posted their 17th successive month of contracting activity with a reading of 49.2.