A woman works in a Macintosh boot factory in Lin’an, located in the east China province of Zhejiang.
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A private survey showed October factory activity in China expanded at its quickest pace since February 2017.
The Caixin/Markit manufacturing Purchasing Managers’ Index (PMI) came in at 51.7 for the month of October as production and new orders both expanded at a faster pace, with a “renewed increase in export business,” according to a joint press release by Caixin and IHS Markit on Friday.
Analysts polled by Reuters had expected the PMI number to come in at 51.0 from 51.4 for September. PMI readings above 50 indicate expansion, while those below that level signal contraction.
“Both domestic and foreign demand improved substantially,” said Zhengsheng Zhong, director of macroeconomic analysis at Caixin subsidiary CEBM Group.
“The subindex for new orders stayed in positive territory and rose to the highest level since January 2013. The gauge for new export orders returned to expansionary territory and reached the highest point since February 2018, due likely to the U.S.’ move to exempt more than 400 types of Chinese products from additional tariffs,” Zhong wrote in the press release.
Even though new orders with companies rose at the fastest clip since the U.S.-China trade war broke out, “business confidence has been weak” amid a cautious attitude toward replenishing inventories, Zhong added. The labor market also contracted.
The results of the private survey stood in contrast from official manufacturing data released on Thursday showed factory activity in China contracted for the sixth month in a row.
The official PMI survey typically polls a large proportion of big businesses and state-owned enterprises. The Caixin indicator features a bigger mix of small- and medium-sized companies.
The divergence in results of the official and private surveys makes it difficult to gauge how the Chinese economy performed at the start of fourth quarter, said Julian Evans-Pritchard, senior China economist at Capital Economics, who expressed skepticism about Friday’s data.
“Historically, the Caixin index has been the more reliable guide to cyclical fluctuations in China’s economy … On balance, it therefore seems most likely that growth continued to pick up last month,” Evans-Pritchard wrote in a note on Friday.
“That said, we doubt that activity will be as strong as the Caixin index implies. One reason to be sceptical is that industrial metal prices have only seen very modest gains recently,” he added.
The PMI is a survey of how businesses view the operating environment. Such data offer a first glimpse into what’s happening in an economy, as they are usually among the first major economic indicators released each month.