BEIJING, Sept 30(Reuters) - 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 on Monday, 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 by Reuters 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 war between the United States and China 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 government has been trying to spur domestic demand for over a year through higher infrastructure spending, but the measures have been slow to gain traction.
“Central policymakers have recently been emphasizing the strong growth in the domestic market,” said Zhengsheng Zhong, 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.”
The National Statistics Bureau said on Friday that the world’s second-largest economy is being increasingly driven by domestic consumption, even as the trade war and softer global demand continues to weigh on exports.
Top-level trade negotiators from China and the United States are expected to meet in Washington Oct. 10-11 to determine if they can reach a truce in the trade dispute and avert new and higher tariffs in coming months.
NOT ALL THAT ROSY
With economic growth cooling to near three-decade lows and the trade war escalating, China has cut its new benchmark lending rate twice in the last two months to reduce borrowing costs.
But the moves have been far smaller than recent easings by the U.S. Federal Reserve and the European Central Bank, suggesting Chinese policymakers remain reluctant to join a global stimulus wave due to worries about rising debt.
Still, policymakers are widely expected to unveil more monetary and fiscal support measures in coming months.
Weak data in recent months has shown pressure was building on the economy, with industrial output growing at its weakest pace in 17-1/2 years in August.
Some analysts believe third-quarter growth could breach the lower end of Beijing’s full-year target of 6.0-6.5%.
Despite the apparent pick-up in manufacturing activity in September, the survey showed businesses remained cautious.
The labour market remained subdued, with an employment sub-index standing unchanged from the previous month and contracting for a sixth straight month.
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, as worries persisted over the outcome of trade negotiations.
Reporting by Stella Qiu and Ryan Woo; Editing by Kim Coghill
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