Chinese factory sector activity likely to be sustained, Caixin says

Data released in China overnight appears to show the Asian giant's economy accelerated at the start of the third quarter, although economists appeared to be divided on the outlook.

Caixin's non-official Chinese manufacturing sector purchasing managers' index rose to a reading of 51.1 points for July - a four month high - after a print of 50.4 in June, defying forecasts for a dip to 50.2.

Subindices linked to output and new orders both rose to five-month highs, helped by a "solid" upturn in new export sales, according to Caixin.

Yet analysts at Capital Economics continued to voice skepticism that the increased rate of expansion would be sustained, but admitted the data now pointed to an acceleration in growth at the start of the third quarter and not a slowdown.

Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group was more confident.

"Operating conditions in the manufacturing sector improved further in July, suggesting the economy’s growth momentum will be sustained. That said, it’s unlikely that financial regulatory tightening will be relaxed," he said.

On the other hand, Caixin said business optimism for the year ahead set an 11-month low in July.

This coincided with a subdued level of confidence towards the business outlook, with optimism towards the year ahead dipping to an 11-month low.

On a related note, Jim Reid at Deutsche Bank on Tuesday told clients: "Staying with China It's fair to say that consensus expects China’s economic growth to slow slightly in 2H, which is DB’s base case too. However, our China economists now see the risk to the H2 growth outlook shifting to the upside, in part driven by high frequency data that suggests land supply and auctions remained hot in July. With the land market this strong, the fiscal revenue in H2 will strengthen and support infrastructure spending."