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China factory expansion slows in September as export orders soften - Caixin PMI

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China factory expansion slows in September as export orders soften - Caixin PMI

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BEIJING (Reuters) – China’s manufacturing activity grew at its weakest pace in three months in September as new orders cooled, a private survey showed on Saturday, reinforcing views that the economy may be starting to slow after a stellar first half. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 51.0 in September, compared with 51.6 in August and missing economists’ expectations for only a slight dip to 51.5. While the reading remained above the 50-point mark that separates growth from contraction for the fourth straight month, it suggested only a marginal improvement in the health of China’s vast manufacturing sector. Factory output continued to expand at a modest clip, dipping only fractionally from August. But new orders rose at the slowest pace in three months (51.2 vs 53.2) suggesting a deceleration in both domestic and export demand, though the survey did not give many details. Survey respondents also reported mounting inflationary pressures, with both input costs and output prices rising at the fastest pace this year. A sustained rebound in raw materials prices, fuelled by a year-long construction boom, has boosted profits this year for China’s miners, smelters and steel mills, but squeezed margins for companies further down the supply chain. Survey findings for September and August suggested those intermediate companies are now passing on more of the higher input costs to their customers, though selling prices are still not keeping pace. “The Chinese economy was stable in the third quarter. But the outstanding price pressure from upstream industries will be a drag on the continued improvement of companies’ profitability,” Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, said in a note accompanying the data release. But there are signs that the country’s long commodities rally has peaked, or at least is in the midst of a major correction. China iron ore futures are on pace for their biggest monthly decline in September since May 2016 amid increasing concerns about demand as government inspections have curtailed steel production and ample inventories. The Caixin survey also cited a number of respondents saying stepped-up environmental inspection policies this year had impacted supplier delivery times. Authorities have also vowed to close some mines and factories to reduce smog in winter. Bolstered by manufacturing and a hot property market, China’s economy grew by a faster-than-expected 6.9 percent in the first half of 2017, and looks set to easily meet the government’s full-year target of around 6.5 percent. But there are signs that momentum is slowly starting to fade. August data from industrial output to investment and retail sales was softer than expected, which many analysts attributed to a rise in borrowing costs this year as the government tries to reduce the risks from a rapid build-up in debt.

(Reporting by Elias Glenn; Editing by Kim Coghill)
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