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Andrew Mullen

1. Mixed manufacturing message
China’s official manufacturing purchasing managers’ index (PMI) slipped to a six-month low of 49.1 in August, down from a reading of 49.4 in July.
The survey of sentiment among factory owners fell short of a survey by Bloomberg. A reading above 50 typically indicates an expansion of economic activity, whereas a reading below implies a contraction.
But the Caixin/S&P Global manufacturing PMI – which mostly covers smaller, export-oriented firms - rose to 50.4 in August from 49.8 the previous month, beating analysts’ forecasts.
“The Caixin manufacturing PMI for August returned to expansionary territory, but the growth was limited. Considering the government’s ambitious annual economic growth target, the challenges and difficulties in stabilising growth over the coming months will be substantial,” said Wang Zhe, senior economist at Caixin Insight Group.


Gabriel Ng, assistant economist at Capital Economics, said the average across the two gauges “rose a touch” from 49.6 to 49.7.
The new exports component, meanwhile, fell to 49 from 49.5 last month.
“At face value, that points to a slowdown in exports. But it is worth keeping in mind that the PMIs have tended to understate the strength of foreign demand in recent years,” Ng said.
2. Mixed bag for services
China’s official non-manufacturing PMI – a measure of sentiment in the service and construction sectors – stood at 50.3 in August compared to 50.2 in July, with analysts pointing to a pickup in services activity, particularly the entertainment and telecommunications sectors.
The gauge remained in expansion territory for the 20th straight month as it exceeded expectations in a Bloomberg survey for a slight fall to 50.1.
But within the non-manufacturing PMI, the construction subindex reached its lowest point since 2020 after falling from 51.2 in July to 50.6 in August.
The services subindex, meanwhile, stood at 50.2 from 50 in July.
“To the extent that the recent step-up in government borrowing is supporting infrastructure spending, this appears to have been insufficient to offset the drag on construction from the property downturn,” Ng said.


Elsewhere, the Caixin/S&P Global services PMI slipped to 51.6 in August from 52.1 in July.
The new business index remained above 50, but the rate of growth was softer than July, with export business quickening as overseas client interest in the tourism industry supported faster business growth.
“Although the index remained in expansionary territory for the 20th straight month, growth in activity slowed,” Wang added.
Taken together, the average of the two services PMIs decreased to 50.9 from 51.1 a month earlier, Ng said.
3. Composite PMIs ‘fall a touch’
China’s official composite PMI – which tracks both the services and manufacturing sectors – stood at 50.1 from 50.2 in July.
Meanwhile, the Caixin/S&P Global composite PMI posted 51.2 in August, unchanged from July as faster manufacturing output growth was offset by slower services activity expansion.
The average across the composite PMIs “fell a touch” to 50.6 from 50.7, Ng said.
Any cyclical recovery is likely to be short-lived, with downside risk to exports mounting
Gabriel Ng, Capital Economics
“The increase in policy support since July does seem to have succeeded in stabilising growth. And momentum could improve somewhat in the near-term given that fiscal spending looks on track to pick up further,” he added.
“But any cyclical recovery is likely to be short-lived, with downside risk to exports mounting and the structural downturn in construction activity likely to persist for many years.”
4. Economy steady, but momentum concerns remain
On Wednesday, Bank of America cut its forecast for China’s gross domestic product growth in 2024 from 5 per cent to 4.8 per cent. It also lowered its forecasts for both 2025 and 2026 from 4.7 per cent to 4.5 per cent.
But Ng at Capital Economics said the fall in the Caixin services PMI did not affect the fact that economic momentum “held broadly steady” last month.
“All told, the average of the official and Caixin composite PMIs fell only a touch. And we think momentum could improve in the near-term given that fiscal spending looks on track to pick up further,” he added.
But overall, Zhang Zhiwei, chief economist at Pinpoint Asset Management, said economic momentum had likely weakened recently.
“The fiscal policy stance remains quite restrictive, which may have contributed to the weak economic momentum,” he said.
“To achieve economic stabilisation the fiscal policy stance needs to become much more supportive.
“With the US economy slowing, exports may not be as reliable a source for growth as it was in the first half of the year.”


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Analysts said China’s economic momentum held broadly steady in August following the release of the purchasing managers’ indices


Analysts said China’s economic momentum held broadly steady in August following the release of the purchasing managers’ indices.


China economy

China manufacturing

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Explainer | China’s economy faces challenges even as it ‘holds steady’: 4 takeaways from August’s PMIs

Analysts said China’s economic momentum held broadly steady in August following the release of the purchasing managers’ indices

1. Mixed manufacturing message