CHINA’S factory activity unexpectedly expanded at the fastest pace in 19 months in September as plants ramped up production and new orders rose, a private business survey showed yesterday, suggesting a modest recovery in the manufacturing sector.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) for September rose to 51.4 from 50.4 in August, marking the second straight month of expansion. Economists polled previously had expected a dip to 50.2.

The 50-mark separates expansion from contraction on a monthly basis. While modest, the pace of improvement in September was the quickest seen February 2018.

The survey showed the acceleration was largely due to a rebound in domestic demand. New export orders for Chinese manufacturers, an indication of foreign demand, fell for the fourth straight month as a nearly 15-month trade dispute between China and the United States wears on.

Despite external weakness, total new orders increased at the fastest clip in 18 months, while growth in production picked up to the highest since August last year.

An official survey published earlier in the day showed China’s factory activity shrank for the fifth straight month in September, though at a slightly slower pace than the previous month.

The official Purchasing Managers’ Index was at 49.8 in September, slightly higher than 49.5 in August, data from the National Bureau of Statistics showed.

The official survey showed that total new orders, including those from home and abroad, swung back to growth in September, also in an indication of improving domestic demand, but new export orders fell for the 16th month despite improving slightly from the previous month. Production also rose at a quicker pace in September, buoyed by the growth in new orders.

The official services PMI in September was at 53.7, slightly down from August’s 53.8, but stayed well above the 50-mark that separates contraction from expansion, a separate business survey showed.

The official August composite PMI, which covers both manufacturing and services activity, rose to 53.1 from August’s 53.

“Central policymakers have been recently emphasizing the strong growth in the domestic market,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group.

“Faster construction of infrastructure projects, better implementation of upgrading the industrial sector, and tax and fee cuts are likely to offset the influence of the subdued overseas demand and soften the downward pressure on China’s economic growth.”

Despite the apparent pickup in manufacturing activity in September, the survey showed businesses remained cautious.

The labor market remained subdued, with the Caixin employment sub-index standing unchanged from the previous month and contracting for a sixth straight month. The official employment sub-index was at 47 versus 46.9 in August.

Input costs for manufacturing firms rose at the fastest pace since November, while output charges fell for the third straight month, albeit at a slower pace, suggesting that fierce competition for sales is still pressuring profit margins.

Optimism among businesses edged up slightly but still remained weak in September.

(SD-Agencies)