China’s factory activity likely grew at slightly faster pace in August: Reuters poll

BEIJING (Reuters) – China’s factory activity likely expanded at a slightly faster pace in August, fuelled by rising infrastructure spending and improving global demand, a Reuters poll showed on Friday, as the Chinese economy continues to recover from the coronavirus crisis.

The official manufacturing Purchasing Manager’s Index (PMI) is expected to pick up moderately to 51.2 in August from July’s four-month high of 51.1, according to the median forecast of 16 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.

China’s vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy early this year. Pent-up demand, stimulus-driven infrastructure and surprisingly resilient exports have been the main drivers propelling the rebound, but private consumption is lagging as consumers remain cautious about spending.

Profits at China’s industrial firms last month grew at the fastest pace since June 2018, official data showed on Thursday.

“High frequency data such as blast furnace operating rates and crude steel daily output continued to climb in August, likely driven by rising infrastructure demand,” said Jiang Dongying, Shanghai-based analyst at CIB Research.

“On foreign demand, the continued re-opening of overseas economies could help boost new export orders.”

UK-based industry consultancy Off-Highway Research said on Wednesday it now expects a 14% jump in China’s construction machinery sales due to government stimulus, having previously said it would dip 8% before COVID-19.

With infrastructure and property investment set to drive growth for the rest of the year, investment Bank HSBC this week raised its forecast for China’s 2020 GDP growth to 2.4% from 1.7%.

“With an uneven recovery and uncertain global growth, Beijing is focusing on reflating the domestic economy,” Qu Hongbin, chief China economist at HBSC, said in an article on Wednesday.

“We thus expect policy to remain supportive with further interest-rate reductions this year – a 25 basis-point cut in the average reserve-requirement ratio to 9.15% and the one-year loan prime rate trimmed by another 20 points to 3.65%.”

The official PMI and its sister survey on the services sector will be released on Monday.

The Caixin manufacturing PMI will be published on Sept. 1, and analysts expect a reading of 52.7, easing from 52.8 in July. The Caixin services PMI survey will be out on Sept. 3.