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China factory sector growth unexpectedly speeds up in August, services slows

China factory sector growth unexpectedly speeds up in August, services slows
August 31, 2017

BEIJING (Reuters) - Growth in China’s manufacturing sector unexpectedly accelerated in August, suggesting the world’s second-largest economy is still expanding at a healthy clip despite rising financing costs and a cooling housing market.

The official Purchasing Managers’ Index (PMI) rose to 51.7 in August from the previous month’s 51.4, and remained well above the 50-point mark that separates growth from contraction on a monthly basis.

Analysts surveyed by Reuters had forecast the reading would come in at 51.3, little changed from July.

China’s resilience has surprised economists so far this year and given an extra boost to a global recovery despite a crackdown on riskier types of lending and ever tougher curbs to get the overheated housing market under control.

The economy grew by a better-than-expected 6.9 percent in the first half, fuelled by a year-long construction boom, resurgent exports and robust retail sales.

The building boom has fuelled demand and prices for everything from cement to steel, giving China’s industrial giants their best profits in years and more cash flow to pay down a mountain of debt.

But China watchers insist the economy will start to lose some steam eventually, as higher borrowing costs drag on activity in coming quarters.

A sub-index for the construction sector fell to 58.0 in August from 62.5 in July, the PMI survey by the National Bureau of Statistics showed on Thursday.

While still quite robust, the lower reading may suggest the strong economic impulse from a massive government infrastructure spree is starting to fade.

Data for July came in mostly below expectations as growth in imports faltered, while industrial output grew at the slowest pace since early this year.

Still, economists do not foresee a sharp slowdown, especially as the government is keen to ensure stability ahead of a once-in-five-years Communist Party leadership reshuffle in the autumn.

The data on Thursday showed manufacturers cranked up production, with a reading of 54.1 from 53.5 in July.

New factory orders rose to 53.1 from 52.8 in July.

That suggests domestic demand picked up, as export orders fell to 50.4, the lowest reading since January and down from the previous month’s 50.9.

The sub-index for input prices rose to 65.3 in August from 57.9 the previous month, while output prices also grew at a faster pace.

On a potentially worrying note, growth in the services sector cooled in August, falling to 53.4 from 54.5 in July, a similar official survey found.

China’s leaders are counting on growth in services and consumption to rebalance their economic growth model from its heavy reliance on investment and exports.