China manufacturing confidence rebounds amid rising costs

Manufacturing output expanded on the back of rising new orders, while the contraction in export business eased. Increased new work drove purchasing activity and inventories higher, alongside a rise in unfinished business. Business confidence also picked up, although firms stayed cautious on staff hiring.

On the price front, average input costs climbed at the fastest pace in nine months, while selling prices stabilised, ending an eight-month streak of discounting. Rising above the 50 no-change threshold in August, the latest figure signalled that manufacturing sector conditions improved midway through the third quarter of the year, S&P Global said in a press release.

Although marginal, the rate of improvement was the quickest in five months. Rising new orders supported a renewed expansion of manufacturing output in August. This marked the second time in the past three months in which output has increased, though the upturn was only marginal. Better underlying demand conditions and successful promotional efforts underpinned the latest rise in new orders, according to panellists.

Though modest, the rate of new order growth was the quickest seen since March. Companies signalled that the improvement in sales was largely driven by firmer domestic demand, as new export orders fell slightly.

Stronger inflows of new orders also led to a renewed accumulation of backlogged work in August. The rate at which unfinished business increased was the quickest in six months. Despite greater capacity pressures, manufacturers remained cautious with regards to their staffing levels, opting instead to shed staff for a fifth consecutive month.

Purchasing activity increased for a second consecutive month amid higher new orders and production. Anecdotal evidence suggested that some Chinese manufacturers were keen to stockpile in the latest survey period. Holdings of raw materials and semi-finished goods rose at the quickest pace since November 2020.

Stocks of finished goods also accumulated midway through the third quarter. This was attributed to both growth in production and delays in outbound shipments. At the same time, lead times for inputs continued to lengthen in August, albeit only fractionally, amid reports of shipping delays and logistics constraints.

Prices data showed that average input costs rose for a second successive month in August. The rate of inflation was the steepest since November 2024 but remained below the series average. Higher raw material costs were cited as a key reason for the latest increase in expenses. To help cope with rising costs, some manufacturers raised their output charges while others were limited in their ability to pass on higher expenses due to intense competition.

As a result, average selling prices were unchanged in August following an eight-month period of decline. On the other hand, export charges continued to increase on the back of rising transport costs.

Overall, sentiment regarding the one-year outlook for output in the Chinese manufacturing sector remained positive in August. Goods producers were the most upbeat since March amid hopes that economic conditions will improve, and that company expansion plans will help to drive new sales in the next 12 months.

“The RatingDog China Manufacturing PMI rose to a five-month high of 50.5 in August, indicating an improvement in China’s manufacturing conditions and a return to expansion. However, the latest upturn resembled a breath of relief rather than a sustained rally,” said Yao Yu, founder at RatingDog. “It’s positive to see output bounce back above the 50 no change mark after July’s dip, and new orders picked up, pushing inventories of raw materials and finished goods higher.”

“New export orders are still in contraction, but the pace of decline has eased. That’s encouraging, yet we shouldn’t get carried away, because external demand looks partly pulled forward while domestic demand stays soft, so the upside to output may be limited unless domestic demand firms up,” added Yu. “Besides, input prices continued to rise under the ‘Anti-involution’ policy backdrop, and those upstream increases are finally showing up in output prices, breaking an eight-month streak of falling charges. Still, profit trends interpreted from the PMI data showed only a slight recovery and remain under pressure overall.”

“Notably, the manufacturing sector is helping the recovery, but this rebound is patchy. With weak domestic demand, potentially overstretched external orders, and slow profit recovery, the durability of the improvement depends on whether exports truly stabilize and whether domestic demand can pick up pace,” Yu said.

ALCHEMPro News Desk (SG)