In August, China’s manufacturing sector rebounded with surprising vigor. This was a welcome reversal to a nearly three-year period of negative growth. Additionally, RatingsDog’s manufacturing purchasing managers’ index (PMI) landed at 50.5, signaling expansion. This reading shocked economists by the widest of margins. They were already expecting a number of only 49.7, thanks to a survey released this week from Reuters.
The August PMI was the most rapid pace of growth for China’s factory sector since March. This welcome change comes in the backdrop of the National Bureau of Statistics releasing news of an ongoing drop in the official manufacturing PMI. This index reported at 49.4 for the month. That’s up from 49.3 in July. This is still below the important line of 50, which represents contraction.
Yao Yu, the founder of RatingDog, explained the reality behind these figures. He noted that while external demand seems to have been “partly pulled-forward,” domestic demand is still very weak. This sentiment reflects a widespread cautious optimism as it pertains to the uptick in manufacturing activity. It means that the improvement may be weak or temporary.
As Zichun Huang, the China economist at Capital Economics, recently pointed out, that is a big deal. The manufacturing sector’s growth primarily has been driven by a resurgence in new export orders. He pointed out that this trend really illustrated the resilience of external demand in spite of tariffs. The truce from the ongoing Chinese-American trade war has added to that calm. Thanks to these moves, Chinese manufacturers are finally beginning to be able to retake their competitive advantage on global markets.
As good as the hopeful green lights on RatingDog’s index might look, the overall picture is still tough. Indeed, the official manufacturing PMI has now contracted for five months running, indicating persistent challenges in the sector. The divergence between the two indices underscores contrasting views on the health of China’s manufacturing sector.