Activity in China's key manufacturing sector recovered strongly in August, a preliminary survey of factory managers showed on Thursday, helped by a rebound in new orders.
The HSBC flash manufacturing Purchasing Managers Index (PMI) hit a four-month high of 50.1 in the month from a final reading of 47.7 in July, moving above the 50 threshold that demarcates expansion of activity from contraction.
"China's manufacturing growth has started to stabilize on the back of modest improvements of new business and output. This is mainly driven by the initial filtering through of recent fine-tuning measures and companies' restocking activities, despite the continuous external weakness," Hongbin Qu, chief economist, China & co-head of Asian Economic Research at HSBC said.
"We expect further filtering-through, which is likely to deliver some upside surprises to China's growth in the coming months," he added.
The improvement in HSBC's manufacturing survey – which is weighted towards small and medium-sized companies – follows a surprise rebound in the official PMI reading in July.
The official PMI, which focuses on larger and state-owned factories, rose to 50.3 in July from 50.1 in June, beating market expectations of 49.9.
Economic indicators released in the recent weeks including better-than-expectedJuly industrial production and trade data point to a stabilization in the world's second largest economy.
According to research firm Capital Economics, "low-profile" indicators for July such as electricity output – a gauge of activity in heavy industry – and volume of freight being transported around the country add to evidence of the economy gaining some momentum. Power output rose to a record high 8.1 percent in July from a year ago.
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"The latest data add to evidence that the economy is picking up some steam," the firm wrote in a note Wednesday.