China’s Manufacturing Output Rises in August

China’s manufacturing gauge surprisingly rose in August to the highest level in two years.

The manufacturing purchasing manager index increased from July’s 49.9 to 50.4 in August, more than 49.8 estimated by economists prior to the release.

The world’s second largest economy remains stable, and this report confirmed that July dip was as a result of flood that disrupt business activities.

Non-manufacturing purchasing manager index drop slightly to 53.5 when compared with 53.9 recorded in the previous month.

While Caixin Media and Markit Economics China’s August Manufacturing PMI dropped from 50.6 in July to 50 in August.

Floods across China’s Southeastern regions disrupted economic activities in July, but the rebound in August gives lawmakers room to forge ahead with reforms of state owned firms and reduce overcapacity sectors like coal and steel.

“The improvement was encouraging, particularly given the significant restructuring and capacity cuts being undertaken in some key sectors such as steel production,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit in Singapore

“It’s hard to tell whether the good conditions will be sustainable,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. “Monetary and fiscal policy support will not be as supportive as they were earlier this year.”

“August is the beginning month of China’s manufacturing peak season, and we expect the official PMI will go higher in the coming months,” said Iris Pang, senior Greater China economist at Natixis SA in Hong Kong. “High-tech and consumer goods are doing well. It’s a positive sign that China’s manufacturing is changing from the low-value added end to the higher one.”