China's manufacturing activity expanded at the fastest pace in 19 months in September driven by higher output and new orders, a Caixin survey showed on September 30, suggesting domestic demand is supporting the economy amid a prolonged trade war with the U.S.
The Caixin China General Manufacturing Purchasing Managers' Index (PMI) rose to 51.4 from 50.4 in August, the highest reading since February 2018. The number 50 marks the dividing line between expansion and contraction. The higher the reading above 50 the faster the expansion, while the further below 50 the greater the contraction.
Manufacturing accounted for nearly 30% of China's gross domestic product in the first half of this year, according to government data.
"Growth in manufacturing demand was mainly driven by the domestic market as China-U.S. trade conflicts still restrained overseas demand," said Zhong Zhengsheng, director of macroeconomic analysis with consultancy CEBM Group, a subsidiary of Caixin Insight 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."
The output subindex in the PMI showed the highest reading since August 2018, with companies attributing the increase to higher volumes of new orders. The growth largely came from manufacturers of consumer goods, according to the survey.
New orders expanded at the fastest pace since March 2018, even as the gauge of new export orders was stuck below 50 for the fourth straight month. Inventories of goods purchased were at the highest since May 2018, as companies replenished stocks in anticipation of higher orders.
The employment subindex was unchanged from August, which was the highest reading since March, but was still marginally below 50. "As the labor market remains subdued, it's likely that there are structural issues in the labor market," Zhong said.
Input costs increased at the fastest pace since November, which Zhong attributed to fluctuations in exchange rates and the tariff increases stemming from the trade war between China and the U.S., while the index of prices charged to customers was below 50 for the third straight month, although the contraction narrowed sharply. The gap between the two indexes reflects the fierce market competition that is constraining companies' ability to improve their profitability, Zhong said.
A gauge of future output expectations, which measures how optimistic or pessimistic manufacturers are about the outlook over the following 12 months, inched up in September, but was still below July's reading.
China's official manufacturing PMI, released by the National Bureau of Statistics earlier on September 30, rose to 49.8 in September from August's reading of 49.5.
(Writing by Emma Yang Editing by Harry Huo)
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