China CFLP Aug Mfg PMI Beats Forecast as Input Prices Jump

--Official Mfg PMI Above 50 For 13th Consecutive Month

--Official Services PMI Falls to 53.4 from 54.5 in July

     BEIJING (MNI) - PMI data released Thursday by the China Federation of

Logistics and Purchasing:

        Manufacturing PMI  Services PMI

---------------------------------------

August               51.7          53.4

July                 51.4          54.5

     Note: Readings above 50 indicate expansion in the sector, while readings

below 50 signal contraction. The higher the PMI reading above 50, the faster the

expansion in the sector. The lower the reading below 50, the faster the

contraction.

     FACTORS:

     --Manufacturing new orders index fell to 53.1 in August from 52.8 in July

     --Manufacturing production index rose to 54.1 in August from 53.5 in July

     --Input price index rose to 65.3 in August from 57.9 in July

     --Business expectations index rose to 59.5 in August from 59.1 in July

     --New export orders fell to 50.4 in August from 50.9 in July

     TAKEAWAYS: The official China manufacturing purchasing managers index

(PMI), jointly released by the China Federation of Logistics and Purchasing

(CFLP) and the National Bureau of Statistics, rose to 51.7 in August from 51.4

in July. The August index matched the level of 51.7 in June and was the second

highest level this year after 51.8 in March. 

     The pickup in the August manufacturing PMI was unexpected, with the median

forecast of an MNI survey showing an expectation for the index to ease back to

51.3. The August reading was the 13th consecutive month manufacturing sentiment

has been above the 50-point mark, which divides expansion from contraction. And

this was also the 11th consecutive month that the index has been above the

51-point market. 

     The main forces contributing to the rise were input and output prices.

Input prices accelerated to 65.3, the highest reading this, from 57.9 in July.

Output price rose to 57.4, also the highest reading this year, from 52.7 in

July. 

     The gap between input and out prices continued to expand to 7.9 percentage

points, the largest since January, indicating rising prices of raw materials are

squeezing company profits. 

     "The bigger gap indicated product prices in the upstream were rising too

fast, which will boost production costs of downstream manufacturers and drag

down their profits," said Chen Zhongtao, an economist with the CFLP. "It will

hurt coordination among manufacturers and so economic stability."

     The main sub-indexes that make up the PMI showed positive momentum in

August. Production and overall new orders rose to 54.1 and 53.1, up 0.6 and 0.3

percentage point from July, respectively, due to further improvements in demand,

the NBS said. 

     The imports subindex set a record high of 51.4, indicating domestic demand

is increasing. 

     Manufacturers' confidence about the future continued to improve, with the

business expectations subindex rising to 59.5, the highest since 60 in February.

     "The economy has recovered from a short-term swing caused by seasonal and

has returned to stable upward momentum," Chen said.

     Among the other 13 sub-indexes that make up the PMI manufacturing index,

raw material inventories, finished good inventories, orders on hand, supplier

delivery times and employment were below 50, the point that separates expansion

from contraction.

     The new export order fell to 50.4, the lowest since January, which aroused

attention. 

     Li Xuezhi, economist with Bank of Communications, told MNI "the signs of

weak foreign demand have shown up after export orders fell for two consecutive

month, and so its contribution to Chinese economic growth will decline."

     CFLP's Chen attributed the decline in export sentiment to rising

protectionism abroad. "The trade barriers set by certain countries against China

have increased trade conflicts, which has worsened trade environment," he said,

without naming specific countries. 

     The raw material inventories index inched down to 48.3 from 48.5 in August

as the manufacturers continued to cut stocks of production inputs.  The

employment index also dipped to 49.1 from July's 49.2.

     By enterprise size, business activity among big manufacturers expanded at a

slightly slower rate, with the index falling to 52.8, down 0.1 percentage point

from July. However, sentiment among medium-size manufacturers increased 1.4

percentage points to 51, returning to expansionary territory, according to the

NBS statement.

     The CFLP services PMI fell in August to 53.4 from 54.5 in July, ending ten

consecutive months of readings above the 54 mark, but remained at a relatively

strong level. 

     The CFLP attributed much of the slowdown to the construction sector. 

     "Hot weather and frequent flooding were the main reasons for the

construction sector's slowdown, and weak investment in the real estate sector

was also a contributor," said Wu Wei, economist with CFLP.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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