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UPDATE 1-China’s factory activity expands at a faster pace in Sept – official PMI

* Manufacturing PMI for September 51.5 vs August 51.0

* Services PMI for September 55.9 vs August 55.2

* New export orders return to growth (Adds background, details)

BEIJING, Sept 30 (Reuters) – China’s factory activity expanded at a faster pace in September thanks to a return to exports growth after several months of shrinking sales, bolstering a steady recovery for the economy as it rebounds from the coronavirus shock.

The official manufacturing Purchasing Manager’s Index (PMI) rose to 51.5 in September from 51.0 in August, data from the National Bureau of Statistics (NBS) showed on Wednesday, and remained above the 50-point mark that separates growth from contraction.

Analysts had expected it to pick up slightly to 51.2.

China’s vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy, as pent-up demand, stimulus-driven infrastructure expansion and surprisingly resilient exports propel a recovery.

The official PMI, which largely focuses on big and state-owned firms, also showed the sub-index for new export orders stood at 50.8 in September, improving from 49.1 a month earlier and snapping eight months of declines, suggesting stronger overseas demand.

A sub-index for employment improved slightly but remained in contractionary territory, standing at 49.6 in September from 49.4 the month before.

Recently, economic indicators ranging from trade to producer prices have all suggested a further pick up in the industrial sector. Profits at China’s industrial firms extended robust growth in August to the fourth month, official data showed on Sunday.

Domestic demand also shows signs of broadening, with industrial output accelerating the most in eight months in August and retail sales growing for the first time this year.

The economy, which grew 3.2% in the second quarter year-on-year, is set to expand 2.2% this year – the weakest in over three decades.

China’s state planner said last week that it would boost investment in strategic industries including core tech sectors such as 5G, artificial intelligence and chips.

The official PMI also showed activity in China’s services sector expanded at a faster pace in September, as demand across the economy continues to recover from the coronavirus-induced slump.

Yet, even as China emerges from the pandemic in fairly stable shape, many expect the road ahead to be bumpy.

A growing rift between China and the United States over trade, technology and a range of other issues have analysts warning about risks to the outlook. Tensions between the two countries are expected to escalate further ahead of the U.S. Presidential election in November, which some China observers say could undercut the recovery. (Reporting by Gabriel Crossley Editing by Shri Navaratnam)

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