China reported on Friday that factory activity was higher than expected in August, with the official manufacturing Purchasing Manager’s Index (PMI) coming in at 51.3.
The Chinese manufacturing PMI had been forecast to fall to 51.0 in August from 51.2 in July, according to a poll of economists by Reuters.
A reading above 50 indicates expansion, while a reading below that signals contraction.
Despite the positive headline numbers, the breakdown of the data suggested that the situation was not as rosy, said Julian Evans-Pritchard, senior China economist at consultancy Capital Economics.
That is as the slight improvement in the manufacturing PMI index was spurred by a pick-up in production. However, there was a rise in the inventories of finished goods, suggesting that demand was not keeping up with output, said Evans-Pritchard.
New export orders were also weaker, he added.
Just last week, the U.S. and China slapped tariffs on $16 billion worth of goods on each other. Both countries also imposed tit-for-tat levies on $34 billion worth of each other’s imports in July.
Market watchers are now keeping their eyes on a fresh round of potential U.S. tariffs on $200 billion worth of Chinese goods expected later this year.
China’s official services PMI for August rose to 54.2 for August against 54.0 in July, the National Bureau of Statistics reported. However, new orders in that sector were also weaker, added Evans-Pritchard.
Already, data last month from China suggested that the world’s second-largest economy was already being affected by the U.S. tariffs.
In July, both official and a private PMI reading by Caixin and IHS Markit fell, with the private manufacturing index dropping to a eight-month low due to a decline in export orders.
China’s official PMI gauge focuses on large companies and state-owned enterprises, while another set of readings by Caixin and IHS Markit focuses on small and medium-sized enterprises — that private manufacturing PMI reading is set to be released on Monday.
