China Manufacturing Index Returns to Expansion Land

BEIJING—China's bloated industrial sector showed surprising signs of strength last month, though economists expect the energy to fade.

The official manufacturing purchasing managers' index, a gauge of factory activity, rose to a 22-month high of 50.4 in August, the National Bureau of Statistics reported Thursday.

The median forecast of 12 economists polled by The Wall Street Journal was that the August figure would match July's 49.9. Instead, the index returned to expansionary territory—a reading above 50; below 50 indicates contraction.

Recent rises in commodities prices and a heating-up property market likely explain part of the improvement, economists said. Subindexes measuring new orders and production moved up, the statistics bureau said.

The more energetic reading comes after months of data points showing torpor or, at best, sending mixed signals about the world's second-largest economy.

Markets reaction was muted, with Hong Kong's Hang Seng Index climbing Thursday morning while trading see-sawed in Shanghai.

Recent economic data from China have been particularly confusing, said Jianguang Shen, an economist of Mizuho Securities. "I don't think August's real economic condition is as strong as official data showed," he said.

A separate, private gauge of manufacturing activity, the Caixin China manufacturing purchasing managers' index, dropped to 50.0 in August from 50.6 in July, Caixin Media Co. and research firm Markit said Thursday.

The official PMI for nonmanufacturing companies, also released Thursday, edged down to 53.5 in August from 53.9 in July.

The Caixin index tends to give more weight to activity in smaller, private companies while the official PMI focuses on larger state companies.

Mr. Shen and other economists said downward pressure on overall economic growth is still increasing as earlier government stimulus measures wane.

Zhang Fan, an economist of RHB (China) Investment Bank, said while the official PMI reading came in high, "I don't think it will last long."

The stronger factory reading comes despite Beijing's efforts to reduce pollution by shutting down factories. To ensure that the sky appears clean and blue during the Group of 20 summit of major economies this weekend in the eastern city of Hangzhou, Chinese authorities are ordering hundreds of factories in five provinces to stop working.

"It's a widespread government campaign. There's no way it won't affect factories' operations," said Mizuho's Mr. Shen.

Liyan Qi and Grace Zhu

(END) Dow Jones Newswires

August 31, 2016 23:55 ET (03:55 GMT)

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