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China's factories seen posting another solid month of growth in August
August 28, 2017 / 8:14 AM / 4 months ago

China's factories seen posting another solid month of growth in August

BEIJING (Reuters) - China’s factories likely posted another solid month of growth in August, suggesting the world’s second-largest economy is still growing at a healthy clip despite rising financing costs and a cooling housing market, a Reuters poll showed.

An employee works at a silk factory in Nantong, Jiangsu province, China July 17, 2017. REUTERS/Stringer

The official manufacturing Purchasing Managers’ Index (PMI) is expected to come in at 51.3 for August, down just a hair from July’s 51.4, according to a median forecast of 39 economists polled by Reuters.

That would signal the 13th straight month of expansion for China’s manufacturers, who are enjoying their best profits in years thanks to a government-led construction boom and a recovery in exports. The 50-mark divides expansion from contraction a monthly basis.

Driven by strong infrastructure spending and record bank lending last year, China’s economy grew by a faster-than-expected 6.9 percent in the first half of 2017 and looks set to easily meet the government’s full-year target of around 6.5 percent.

That momentum has given policymakers room to focus on tackling financial risks stemming from a rapid build-up in debt and an overheated property market.

Economists expect such cooling measures will start to drag on growth eventually, but do not foresee any sharp slowdown, especially as the government is keen to ensure stability ahead of a once-in-five-years Communist Party leadership reshuffle in the autumn.

“Given that the economy is slowing from an elevated position, the central government’s focus should change to stability concerns in place of a focus on economic growth,” analysts at Sun Hung Kai Financial said in a note on Monday.

Some signs of fatigue may already be starting to show.

China’s import and export growth slowed more than expected in July, raising worries about domestic demand. Industrial output, investment, and retail sales also underwhelmed last month, while bank lending and money supply growth also slowed.

Data on Sunday showed industrial profits grew at the slowest pace in three months as a boost from higher commodity prices starts to fade, but they were still up some 21 percent in the first seven months of the year from the same period last year.

Economists expect the findings of a private survey on China’s factory activity will be similar to the official reading.

They predict the private Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) will dip slightly to 50.9 in August from 51.1 in July, which would be the first decline in three months.

The official PMI survey will be published on Aug. 31, along with a similar survey covering the services sector, while the Caixin PMI is set to be released on Sept. 1.

Reporting by Elias Glenn; Editing by Kim Coghill

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