China August Official PMI Up, Export Orders Dip

China's factory activity rebounded a touch in August from a 28-month trough, but tight monetary policy at home and torpid demand abroad has dimmed chances for a sustained recovery.

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China's official purchasing managers' index rose to 50.9 in August from a 28-month low of 50.7 in July, data showed on Thursday.

The sub-index for new export orders dipped to 48.3 from 50.4 and the sub-index for overall new orders was at 51.1 — unchanged from July. The output sub-index rose to 52.3 in August from July's 52.1.

Analysts polled by Reuters had expected a PMI reading of 51, just above the 50-point level that demarcates expansion from contraction.

"The 0.2 percentage points growth in August PMI showed that the Chinese economic recovery is gradually stabilizing", Zhang Liqun said in a statement accompanying the data release.

But Zhang cautioned that uncertainties remain: "The fairly big drop in the new export order index showed that Chinese exports may weaken significantly in the future."

Hurt by Beijing's 11-month-long policy tightening campaign and debt problems in the United States and Europe, China's official PMI has fallen steadily since March, even though actual annual growth in factory output has held up above 13 percent.

The latest reading suggests the trend is intact, and may yet bolster Beijing's confidence that it can still afford to target inflation in its policy agenda and has not "over-tightened".

The input price sub-index, a measure of how much factories pay for raw materials and intermediary goods, picked up to 57.2 in August from 56.3 in July, the China Federation of Logistics and Purchasing said.

The federation compiles the index on behalf of the National Bureau of Statistics.

"Purchasing prices continue to rise in August, showing growing pressure on the corporate cost side," Zhang said.

In its latest attempt to tackle inflation, sources told Reuters last week that Beijing has further reined in bank lending by telling banks to hand over their margin deposits to the central bank for safekeeping.

The move came amid warnings from Chinese leaders that inflation, which ran at three-year highs of 6.5 percent in July, could remain a headache for some time.

The National Development and Reform Commission, China's powerful economic planner, said this week that persistently high global commodity prices are fuelling domestic price pressures, possibly putting Beijing's 2011 inflation target out of reach.

But that said, analysts believe China is unlikely to tighten policy much further in coming months as economic growth in its biggest export markets, the United States and Europe, falter.

A steady tightening of credit conditions by Beijing since October has also left smaller companies starved of cash and choked off growth in certain quarters of the Chinese economy.

That has led some analysts to warn that China could tip its economy into a hard landing if it tightens policy too far. The output sub-index edged up to 52.3 in August from 52.1 in July.