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China factory activity expand further in August: Caixin

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Beijing (AFP)

Chinese factory activity picked up pace in August as strong foreign demand boosted business confidence, independent data showed Friday, the day after a better-than forecast official reading.

The readings, compiled for Chinese financial magazine Caixin and focusing on smaller manufacturers -- will lift hopes that the world's number two economy and key driver of global growth is stabilising following years of slowing.

The Caixin Purchasing Managers Index (PMI) came in at 51.6 for the month, up from 51.1 in July.

A PMI figure above 50 represents growth while anything below points to contraction.

The Caixin data tallies with the government's official PMI reading Thursday, which also showed expansion.

Solid foreign demand helped lift new order growth, encouraging companies to expand production schedules and purchasing activities, Caixin said in a statement with data compiler IHS Markit.

Manufacturers seeking to improve efficiency reduced staff numbers in August, which, combined with the rising pick-up in new work, resulted in an increase in the number of unfulfilled orders.

"Overall operating conditions of the manufacturing sector improved further as market demand strengthens," Caixin analyst Zhengsheng Zhong said the statement.

But the manufacturing sector still faces headwinds from stricter environmental policies, which resulted in longer delivery times, as well as inflationary pressure driven by rises in input costs and output charges.

Higher prices for key industrial metals were likely a key factor in driving up price indices, Julian Evans-Pritchard of Capital Economics said in a note.

"It is speculation over future capacity cuts that has pushed up metal prices and industrial production, rather than stronger underlying demand."

"If prices rise too quickly the profitability of companies in the middle of a supply chain may be under pressure," Zhong said.

Tighter monetary policies will lead to a further slowdown in the economy, according to Evans-Pritchard, adding that they are likely to cripple the long term sustainability of the current strength of industrial activity.

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