China's manufacturing activity picked up in August, underpinned by a recovery in domestic demand and resilient orders overseas, officials and experts said on Monday, indicating that the nation's stepped-up policy support to bolster demand and stabilize growth is starting to bear fruit.
They cautioned, however, that manufacturing remained in contractionary territory for a second straight month, with activity in services and construction also subdued, reinforcing the need for further efforts to sustain the recovery in domestic demand and smooth the transition between old and new growth drivers.
Their comments came on the heels of data from the National Bureau of Statistics on Monday showing that the official manufacturing purchasing managers' index rose to 49.8 in August from 49.2 in July, though it remained in contractionary territory for a second consecutive month.
The pickup was driven mainly by stronger demand, with the new orders subindex rising 2.1 percentage points to 50.6, returning to expansionary territory, the bureau said.
"Domestic demand improved markedly as the impact of extreme heat and heavy rainfall faded and the rollout of policies to boost domestic demand gathered pace," said Wen Bin, chief economist at China Minsheng Bank.
The Ministry of Finance's latest refinements to a six-pronged package of coordinated fiscal and financial policies took effect on Aug 1, further strengthening support for domestic demand.
Backed by 100 billion yuan ($14.8 billion) in central government funding, the package now features broader interest-subsidy coverage, more participating financial institutions and higher loan and subsidy caps, the ministry said.
"We are working on additional coordinated fiscal and financial measures to be rolled out in the second half of the year," Liao Min, vice-minister of finance, said at a recent news conference.
Notably, the new export orders index rose 0.5 percentage point to 50.1 in August, crossing back above the 50-point mark.
"The renewed expansion in export orders underscores the resilience of external demand following a sharp valuation correction across the global artificial intelligence sector in July, while also helping sustain the improvement in manufacturing activity," said Wang Qing, chief macroeconomic analyst at Orient Golden Credit Rating International.
The recovery in demand was mirrored in production, with the production subindex coming in at 50.4 in August, up from 49.9 in July — back into expansionary territory.
New growth drivers were also major contributors to the improvement, with high-tech manufacturing posting a PMI of 52.9 in August, while equipment manufacturing remained in expansionary territory at 51.4.
"The rebound in the August PMI reinforces the view that July's setback largely reflected a temporary summer lull, while domestic demand is beginning to regain momentum," said Chen Mengyun, a macroeconomic analyst at Shenyin & Wanguo Futures.
Wang cautioned, however, that while firmer demand had driven the August rebound, the recovery in domestic demand remained fragile, underscoring the need for further policy support to spur growth.
Wang expects a fresh round of policy support to be rolled out around the end of the third quarter. The central bank has historically been more likely to cut policy rates and the reserve requirement ratio when the official manufacturing PMI falls below 50 after a period of expansion and stays there for two straight months, he said.
In the latest move to shore up domestic demand, the Ministry of Commerce and six other government departments unveiled guidelines on Monday to expand and upgrade goods consumption.
The document aims to lift total retail sales of consumer goods to around 60 trillion yuan by 2030, foster 10-trillion-yuan markets in green, smart and health-related consumption, and sustain growth in major categories such as automobiles and home appliances.
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