China trade portfolio: Factory activity contracts in August despite stronger export demand

China’s factory activity showed signs of stabilisation in August as stronger overseas demand helped lift new orders and production, although manufacturing remained below the level that signals growth. The official manufacturing purchasing managers’ index (PMI) rose to 49.8 in August from 49.2 in July, the National Bureau of Statistics said on Monday. The reading was better than economists had forecast, but remained below the 50-mark that separates expansion from contraction.PMI readings are based on monthly surveys of companies and range from 0 to 100. A reading above 50 indicates an expansion in activity, while a reading below 50 points to a contraction.The improvement was driven in part by a recovery in demand from overseas markets.“Manufacturing activity rebounded thanks to strong export demand,” Nguyen Hoang Nam, a China economist at Capital Economics, wrote in a research note Monday.The underlying factory data also showed a broader improvement. The production sub-index moved above the 50-mark, rising to 50.4 in August from 49.9 in July. New orders climbed to 50.6 from 48.5, while new export orders edged up to 50.1 from 49.6.Huo Lihui, a chief statistician with the national bureau of statistics, said in a statement that the August PMI data reflected an improvement in China's overall economy.Domestic economy remains under pressureThe improvement in factory activity has come against a backdrop of weaker domestic demand. China’s prolonged property-sector slump has partly contributed to sluggish demand at home, weighing on the broader economy despite the strength of exports.China’s economy grew at an annual pace of 4.3% in the April-June quarter. That was the slowest growth rate recorded in more than three years.Exports remain a key supportChina’s export performance has remained strong despite pressure on trade with the US. Exports rose almost 24% in July from a year earlier and increased more than 18% in the first seven months of the year.High-tech goods, including semiconductors, have benefited from strong demand linked to the boom in artificial intelligence. Electric vehicles have also been an important source of export growth, with demand partly supported by higher energy costs due to the Iran war.At the same time, Chinese exporters have been selling more to markets such as Europe and Southeast Asia as US tariffs have dented China-US trade following Donald Trump’s return to the White House last year.“ Demand for green technologies was already accelerating last year and has continued to strengthen, providing an important additional boost to Chinese exports so far this year,” said Max Zenglein, a senior economist for the Asia Pacific at The Conference Board.Trade is also expected to remain a key issue in discussions between Trump and Chinese leader Xi Jinping, who are expected to meet in late September.Get the latest Business News and Live updates. Download the TOI app.