China’s economic recovery picks up as services sector accelerates growth

Activity in China’s non-manufacturing sector expanded at the fastest pace this month since January 2018, highlighting that the world’s second largest economy continues to recover from the coronavirus crisis.

Data published by the National Bureau of Statistics (NBS) on Monday shows that the non-manufacturing purchasing managers index (PMI), an official measure of health in China’s services sector, beat expectations to rise to 55.2 in August from 54.2 in July.

While any reading above 50 signals growth, this month’s expansion was the fastest since the services PMI rose to 55.3 in January 2018. While the higher non-manufacturing PMI signals a faster recovery in services and “a buoyant construction sector,” the key manufacturing sector “still faces headwinds and uncertainties” from the pandemic, Lu Ting, chief China economist from Nomura, noted after the data was released.

An official gauge of China’s factory activity – manufacturing PMI – did not do exceptionally well this month. The reading fell slightly to 51.0 in August from 51.1 last month. This was below analysts’ forecasts, as those polled by Reuters and Bloomberg expected August PMI to stand at 51.2. The drop in factory activity came as some Chinese provinces suffered from heavy floods that disrupted the procurement cycle of raw materials, the statistics agency explained.

The official August composite PMI, which combines data from both services and industrial sectors, rose to 54.5 from July’s 54.1, signaling that the Chinese economy continues to rebound from a coronavirus-triggered slump. Both indices have remained above the 50 mark that separates expansion from contraction for six consecutive months, after reaching historic lows at the beginning of the year, when the deadly virus was still raging in China.

While overall production and operating activities of Chinese businesses continue to return to pre-virus levels, statisticians noted that many small firms reported insufficient market demand and over 40 percent that reported capital shortage.

“Both the manufacturing and services PMIs are expected to stabilize within expansionary territory, with the possibility of a slight acceleration,” Liu Xuezhi, an economist at the Bank of Communications in Shanghai, said as cited by Bloomberg. He added that Beijing is unlikely to roll out additional large stimulus this year, as it should focus “on implementing existing policies.”

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