BEIJING (Reuters) - China's factory activity grew at a slower pace in August as floods across southwestern China disrupts production, but the services sector expanded at a solid rate in a boost to the economy as it continues to recover from the coronavirus shock.
The world's second-biggest economy has largely managed to bounce back from the health crisis, though intensifying Sino-U.S. tensions over a range of issues and the global demand outlook remain a risk factor.
The official manufacturing Purchasing Manager's Index (PMI) fell slightly to 51 in August from 51.1 in July, data from the National Bureau of Statistics showed on Monday. It remained above the 50-point mark that separates growth from contraction on a monthly basis.
Analysts had expected it to pick up a touch to 51.2.
China's vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy, as pent-up demand, stimulus-driven infrastructure expansion and surprisingly resilient exports propel a recovery, but the recovery remains uneven.
A sub-index for the activity of small firms stood, however, at 47.7 in August, down from July's 48.6, with over half of them reporting a lack of market demand and more than 40% of them reporting financial strains, Zhao Qinghe, a senior statistician with the NBS, said in a separate statement.
"In addition, some companies in Chongqing and Sichuan reported an impact from the heavy rains and floods, resulting in a prolonged procurement cycle for raw materials, reduced orders and a pullback in factory production."
The official PMI, which largely focuses on big and state-owned firms, also showed the sub-index for new export orders stood at 49.1 in August, improving from 48.4 a month earlier and suggesting a bottoming out in the contractionary trend after COVID hit.
"The growth engine is now clear. Overseas demand will only pick up slowly and travel restrictions will only be relaxed if COVID-19 cases subside overseas. Until then China will rely more on its own for economic growth," said Iris Pang, Greater China chief economist at ING.
Economic indicators ranging from trade to producer prices all suggest a further pick up in the industrial sector. Profits at China's industrial firms last month grew at the fastest pace since June 2018, data showed on Thursday.
SERVICES SHINE
Activity in the construction sector, a powerful domestic growth driver, also eased in August, likely due to the floods in Southern China. But analysts are confident that as the torrential rains recede, Beijing's infrastructure push - on the back of accommodative policies - would further bolster growth.