After briefly falling into contraction territory in July, China’s manufacturing sector returned to expansion in August, with supply and demand improving.

The Caixin China manufacturing purchasing Managers’ Index (PMI) for August, released on September 1, recorded 51.0, up 1.8 percentage points from July and back above the critical point.

The trend is in line with the NBS manufacturing PMI. Data released by the National Bureau of Statistics on August 31 showed that the manufacturing PMI recorded 49.7 in August, up from 0.4 percentage points in July, and has been in the contraction range for five consecutive months, but has climbed for the last three months.

From the Caixin China manufacturing PMI sub-index, the supply and demand of the manufacturing industry resumed expansion in August, and the manufacturing production index and the new order index rebounded to above the line of growth and contraction. Driven by the improvement of market conditions and the recovery of sales, although some enterprises have reduced the number of working days due to high temperatures, the overall production has still increased. The output and demand of the consumer and investment category manufacturing industry rose in the month, and the output of the intermediate category was roughly flat. External demand remained weak, with the new export orders index rising slightly in contraction territory in August and export demand falling in all three major categories.

HE693ADC410C

Better supply and demand led to a marked improvement in manufacturing employment, with the employment index moving into expansion territory in August for the first time in six months and the highest since April 2010. The survey results showed that the expansion plans of enterprises supported the recovery of labor in the month, and the improvement of labor in the three categories of consumer goods was more obvious.

Factory purchasing activity also expanded in August after a slight contraction in July, but the inventories of raw materials index fell into contraction territory, with some manufacturers citing high costs for some raw materials and remaining cautious about inventories, and others citing relatively weak sales, leading to reluctance to build inventories.

Enterprises produced more than sales, while some enterprises delayed shipments, resulting in the inventory of finished goods continued to increase in August. However, raw material supply improved, supplier capacity was sufficient, delivery speed improved, supplier delivery time index from the rebound to expansion.

Some raw material prices, such as metals, rose in August, pushing the raw material purchase price index back above the critical point for the first time since April. Although the cost rose, the market competition was fierce, the bargaining power of manufacturers was weak, and the ex-factory price index rose only slightly in the contraction range in the month.

Manufacturing entrepreneurs remained optimistic about growth in the year ahead, but the index of expectations for production and operations fell to its lowest level in nearly 11 months in August. Some companies are worried about weak demand at home and abroad.

Caixin Think Tank senior economist Wang Zhe said that in August, China’s manufacturing industry prosperity improved, in addition to weak exports, supply, demand, employment indexes are located in the expansion range, but the problem of insufficient internal demand and weak expectations or in the longer term to form a negative cycle, stacked external demand uncertainty, the economic downward pressure may continue to increase. At present, stabilizing expectations and increasing personal income remain the priority of our policies. The internal and external economic environment has become increasingly complex, and the urgency and necessity of relevant supporting policies have further increased.