Manufacturing increases at fastest pace since 2011: Caixin PMI

China's factory activity expanded at its fastest pace in July since 2011 as domestic demand continued to improve after the pandemic, a private business survey showed on Monday.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 52.8 in July from June’s 51.2. This is the highest headline reading since February of 2011.

The upbeat Caixin PMI echoed the official PMI released on Friday, which rose to 51.1 from June’s 50.9. 

The threshold of 50 divides expansion and contraction.

“The upward PMI in July reflects that the manufacturing sector continued to expand amid the ongoing economic recovery,” Wang Zhe, senior economist at Caixin Insight Group, wrote in a note.

“The supply and demand sides both improved, with relevant indicators maintaining strong momentum,” he added.

Specifically, both factory output and total new orders recorded the strongest increase in July since January 2011, and a gauge of output prices rose at the fastest pace since September of 2018, signaling future producer inflation that could help boost firms’ profits, the survey showed.

Despite strong domestic demand, overseas demand remained weak in July with a gauge of new export orders lingering below 50 for the seventh month in a row. But the decline was at its slowest rate in six months.

Employment remained weak too, with a sub-index for employment also staying in negative territory for the seventh consecutive month, although payroll cuts moderated as sales improved in July.

The survey found that some companies increased recruitment to meet production needs, but others remained cautious and laid off workers to reduce costs.

“Manufacturers will need more time and confidence to increase employment,” Wang said.

“Overall, flare-ups of the epidemic in some regions did not hurt the improving trend of the manufacturing economy, which continued to recover. However, we still need to pay attention to the weakness in both employment and overseas demand,” he added.

China's economy posted positive growth in the second quarter reversing the retreat in the first, with the country gradually returning to normal after the COVID-19 outbreak.

The nation’s gross domestic product expanded 3.2 percent year on year in the second quarter to around 25.01 trillion yuan (US$3.57 trillion), compared with the 6.8 percent decline in the January-March period, according to the National Bureau of Statistics.