China August PMI seen hitting three-month high

A worker welds at a machinery manufacturing factory in Huaibei, Anhui province August 20, 2013. [Photo/Agencies]

Beijing - China's factory activity in August may have expanded at the fastest pace in three months, a Reuters poll showed, adding to evidence that the world's second-largest economy may be stabilizing after slowing for more than two years.

The median forecast of 12 economists polled by Reuters showed China's official manufacturing managers' index (PMI) in August may have risen to 50.6 from July's 50.3.

A reading above 50 indicates expanding activity while one below it points to a contraction.

China has stepped up efforts in recent months to prevent a sharp economic slowdown by quickening railway investment and public housing construction and introducing a series of measures to help smaller companies, which could sustain the revival of internal demand in the coming months.

"PMI data for August could further confirm a stabilizing trend of the economy, which is mainly underpinned by infrastructure and property investment," said Nie Wen, an analyst at Hwabao Trust in Shanghai.

A similar, preliminary private sector survey of purchasing managers, sponsored by HSBC and published last week, showed activity in China's industrial sector grew at its quickest pace in four months in August as new orders surged.

The anticipated uptick in the vast manufacturing sector could also have been boosted by rising domestic demand from inventory rebuilding after significant destocking in the second quarter, analysts said.

Data on Tuesday showed that industrial profits in July grew 11.6 percent in July from a year earlier, picking up from annual growth of 6.3 percent in June, further evidence of an improvement in corporate fortunes.

The government has also been talking about how the economy has stabilized, looking to soothe concerns on global markets about a hard landing for an economy that had slowed for nine out of the past 10 quarters.

The National Bureau of Statistics' spokesman told a media briefing on Monday that there were positive changes emerging in the economy and the government's 7.5 percent annual growth target is achievable.

Vice Finance Minister Zhu Guangyao added his voice on Tuesday, saying that there was no need for government stimulus and that growth can instead be supported through structural adjustments.

Analysts said other figures showing increased power generation and cargo freight for early August could also bode well for economic performance this month, suggesting a rapid economic slowdown may have been arrested.

"We see a big chance of a rebound in the official PMI figure in August, as indicated by stronger power data and recovering cargo transport "said Gao Yuan, an analyst at Haitong Securities in Shanghai.

Growth in China's exports, a key driver of the economy, is expected to stabilize further for the rest of the year due to modest and gradual recovery in the United States and euro area.

The commerce ministry said last Friday that the country's trade flows were steadying in early August, with global demand improving and government measures to help exporters kicking in.

There remain obstacles to a strong rebound, however, including regulatory tightening of the shadow banking business, on which many small companies still depend for financing.

The official PMI data will be released on Sunday, Sept 1.