China's vast manufacturing sector kept up its steady recovery last month, defying the gloom in the Shanghai stock market, an official survey showed this morning.
The purchasing managers' index (PMI) compiled by the China Federation of Logistics and Purchasing (CFLP) rose to a 16-month high of 54.0 from 53.3 in July as output, new orders, imports and employment all showed strength.
It was the sixth straight month that the official PMI, designed to give a timely snapshot of business conditions, has stood above the watershed mark of 50.
A reading over 50 indicates an expansion of activity, while one below 50 suggests contraction.
"The slight increase in August PMI's shows that China's economy is maintaining upward momentum," Zhang Liqun, an economist at the State Council's Development Research Centre, said in a comment for the logistics federation.
The reading compared with a record low of 38.8 plumbed in November when the economy was slumping due to a collapse in external demand and a downturn in the domestic property market.
The stream of good - though not spectacular - economic news out of China lately has not prevented a fierce sell-off in Shanghai stocks.
"China's equity market has taken a battering in the last few weeks, but the economic data suggests that the recovery remains on track," said Brian Jackson, a strategist with Royal Bank of Canada in Hong Kong.
The main Shanghai index has tumbled more than 23 per cent from its 2009 peak on August 4th as investors fret that the central bank is ordering banks to slow new loan disbursements following a record lending spree in the first half.
A fall of 6.74 per cent in Shanghai yesterday rubbed off on Wall Street, where the Standard and Poor's 500 Index fell 0.81 per cent, and oil fell below $70 a barrel as traders read the sell-off in Chinese shares as portending economic weakness.
But Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong, said Shanghai was an inappropriate barometer of global risk appetite because the market was largely closed to overseas investors due to China's capital controls.
"It bears little resemblance to on-the-ground reality in China. We're seeing an improvement in the PMI consistent with an economy still gaining momentum in August," Mr Maguire said.
Reuters