Asia’s factories cranked up production in August as global demand remained strong, confounding expectations that growth might have peaked. However, worries about China’s massive debt and monetary tightening in the West are likely to keep businesses and markets on edge for months to come.
In China, manufacturing activity accelerated to a six-month high, buoyed by the sharpest increase in new export orders in seven years and higher prices, a private survey showed.
The Caixin/Markit survey showed new business grew at the strongest pace in more than three years in August. The manufacturing purchasing managers’ index rose to 51.6, from 51.1 in July. Levels above 50 suggest expansion.
That echoed similarly robust official data on Thursday, suggesting the industrial sector is continuing to prosper from a year-long, government-led building boom. In both cases, economists had expected growth rates to ease.
The third quarter is now looking strong enough that China could sustain much of the momentum from its forecast-beating 6.9 percent growth in the first half of the year, despite a regulatory crackdown on riskier types of financing and debt and a slew of measures to cool its overheating property market.
Indeed, ratings agency Moody’s Investors Service this week raised its growth forecasts for China, South Korea and Japan.
However, risks for China abound as the government tries to defuse a rapid build-up in corporate debt that is now estimated at around 1.7 times the size of the economy.
Further regulatory tightening could curb growth in the near-term or roil financial markets, even though debt control and reforms are needed to foster longer-term sustainable growth.
Yesterday, the head of the People’s Bank of China’s research bureau said the property market has become a major source of financial risk and new measures should be considered.
Manufacturing last month also expanded solidly in the world’s No.3 economy, Japan, as domestic and export orders picked up.
However, the pick-up in new business was generally more modest than in China, suggesting Japanese economic growth could moderate from an eye-popping 4 percent annualized rate in the second quarter of the year.
Other Asian electronics producers were also still riding high.
Taiwan’s manufacturing survey saw the fastest growth in four months, while South Korea’s exports beat expectations and posted their longest run of growth in almost six years.
India’s activity also unexpectedly rebounded last month, in a sign there was light at the end of the tunnel, with the shock of last year’s demonetization cash crunch, and confusion over a new goods and services tax likely to ease in coming months.
While policymakers in China and Japan still have their feet firmly on the gas, feeding a steady stream of stimulus to their economies, stronger growth in the West is prompting central bankers there to start winding back years of super-easy money.
AXA Investment Managers global head of research and investment strategy Laurence Boone expects the Fed to announce the unwinding of its enormous balance sheet in September and the European Central Bank to announce in October that it will start tapering its asset purchases next year.
“US politics is seen as the main source of uncertainty in the Western world,” Boone said.
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