China manufacturing PMI at four-month high in August

Chinese manufacturing has started to stabilise on the back of new orders despite external weaknesses, according to HSBC's flash estimates released today.

The manufacturing purchasing managers' index (PMI) for August recorded a four-month high of 50.1, significantly up from the 47.7 recorded in July. Manufacturing output index hit a three-month high of 50.6 compared to 48.0 last month.

A PMI above 50 represents overall expansion in activities from the previous month, while a value below 50 indicates contraction.

Commenting on the preliminary figures, HSBC's chief economist for China, Hongbin Qu said, ''China's manufacturing growth has started to stabilise on the back of modest improvements of new business and output.''

''This is mainly driven by the initial filtering-through of recent fine-tuning measures and companies' restocking activities, despite the continuous external weakness,'' he added.

According to some analysts, the latest data suggest that growth in the world's second-largest economy may have bottomed out in the second quarter with somewhat improved prospects in the later half of the year.

However, some economists are sceptical about a sustainable recovery as structural issues and deleveraging trend could drag down growth.

''We expect further filtering-through, which is likely to deliver some upside surprises to China's growth in the coming months,'' Hogbin said.

The manufacturing recovery is primarily driven by the domestic demand, as new export orders remained weak, registering a decrease for the fifth straight month due to continuation of global uncertainties.

A sub-index representing new orders increased to 50.5 in August from 46.6 in July. Employment also improved in August, but was still below the 50 mark.

The PMI is a composite index based on five of the individual indices, namely, new orders, output, employment, supplier's delivery time and stock of items purchased, each given appropriate weight.

The flash estimate is based on about 85-90 per cent of survey data received from 420 manufacturing companies, which is released one week before the final PMI figures.

China's gross domestic product (GDP) grew at 7.5 per cent in the second quarter, lower than the 7.7 per cent in the first, raising concerns of a prolonged economic slowdown. However, the government is confident of meeting the targeted 7.5-per cent growth in 2013, albeit the lowest in over two decades.

The trade data released by the custom's department a fortnight ago has indicated that exports have risen 5.1 per cent in July compared with a fall of 3.1 per cent in June, well above analysts' expectations.

Imports, which had dropped 0.7 per cent in June, showed a 10.9-per cent leap for July.

The Chinese government has taken a series of measures in the current year to abate the economic slowdown, including tax incentives to small firms, assistance to ailing exporters and approval of infrastructure projects.