Manufacturing continues six-month expansion

Workers at a steel mill in East China's Jiangsu Province. China's manufacturing sector kept up its steady recovery last month. PMI rose to a 16-month high of 54.0 from 53.3 in July. Photo: CFP

The Purchasing Manager's Index (PMI) hit a 16-month high of 54 in August, up 0.7 points from July, said the China Federation of Logistics and Purchasing (CFLP) yesterday.

The PMI reading stayed above 50 for the sixth month in a row, indicating that the country has been on a basically solid recovery track, said CFLP.

The PMI is composed of 11 sub-indexes that measure different aspects of the manufacturing sector. Of all 11 sub-indexes, only the supplier's delivery time sub-index saw a drop from the previous month.

Domestic demand has rebounded and production is up, spurring on China's economic recovery, said CFLP.

From July to August, the sub-index measuring new orders rose 0.8 points to 56.3, hitting a 16-month high. Of the 20 industries tracked in the survey, only three registered readings below 50 in new orders.

The sub-index measuring employment reached 51.4, also a 16-month high. Of the 20 industries, 10 reported readings above 50 in employment.

China's PMI is expected to remain above 50 in the next two quarters, analysts led by Ting Lu at Banc of America Securities-Merrill Lynch forecasted yesterday in a research report.

However, CFLP pointed out that problems remain as the economy recovers.

The future of exports remains uncertain, said CFLP. The reading for new export orders remained unchanged from July to August. The new export orders reading was above 50 for the fourth consecutive month, but its growth has slowed recently. Of the 20 industries, only eight registered readings above 50 in new export orders.

CFLP also noted fears about the rising raw material prices. The input prices sub-index surged to 62.6 in August, up for the ninth consecutive month, the highest in 12 months. Of the 20 industries, 18 reported readings above 50 in input prices, with 13 coming in above 60 and four over 70.

There won't likely be a sharp price hike, but inflation fears loom, Ken Peng said in a Citigroup research report yesterday. A surge in input prices could propel cost-driven inflation forward next year, Peng stated.

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