China Caixin PMI Reports August Factory Activity Expansion Despite Weak Demand

China Manufacturing Activity
An employee works on the production line of a tyre factory under Tianjin Wanda Tyre Group in Xingtai (Photo: Reuters / Jason Lee)

The results of a private survey, which were published on Monday, revealed some surprising data indicating an expansion in China's manufacturing activity for the month of August.

The data somewhat contradicted initial expectations given the continually contracting factory output in the country as a direct result of its ongoing trade dispute with the United States.

The data did coincide with a slight improvement in the Caixin Markit factory Purchasing Managers' Index (PMI), which improved to 50.4 points in August.

This was a slight increase from the PMI's 49.9 points in July. The figure also managed to beat initial analysts' expectation of 49.8 for the month of August. A PMI reading above 50 indicates an expansion and a reading below 50 points indicates a contraction.

Economic analysts have pointed out that new orders in China had expanded slightly in August. However, overall demand for manufactured Chinese products still continued to be flat albeit in the expansionary territory. The slight bump in August was seen as a clear sign of recovery, mainly fueled by enhanced production activity.

Experts have warned that the recovery in August could be a short-term rebound. The increase in manufacturing activity could potentially decline given the current geopolitical situation, sluggish global demand, and the country's ongoing dispute with the United States.

Marketing strategist at IG Asia, Jingyi Pan, also echoed the same sentiments and mentioned that it was too early to be jumping into conclusions. The positive numbers in the Caixin PMI should not be taken as a reason for relief given the country's precarious trade predicament.

Outside of China, manufacturing activity in countries such as Japan, Taiwan, and South Korea have continued to decline. The manufacturing powerhouses have suffered amid globally weakening demand and as a result of the ongoing trade dispute between the world's two largest economies.

Japan's Jibun Bank Japan PMI reported a decline to 49.3 in August from 49.4 points in July. Meanwhile, South Korea's manufacturing activity also remains in contractions hitting 49.0 points in August and 47.3 points in July. Both countries are currently in the middle on their own trade dispute, further hurting demand.  

The Caixin PMI also only showed a small portion of the entire manufacturing industry given that it also tracks around 500 private factories. The county's official index, which tracks more than 3,000 larger manufacturers, still reported a contraction. The official manufacturing PMI for August, which was released over the weekend, inched downward to 49.5, which is its fourth consecutive month of contraction.

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