China Sept official PMI edges up to 51.1, but small firms struggle

(Reuters) – China’s manufacturing growth edged up only slightly in September, official data showed on Tuesday, with small firms struggling in the face of overcapacity and weak demand, adding to concerns a nascent economic recovery may be foundering.

The official Purchasing Managers’ Index (PMI) stood at 51.1 last month from August’s 51.0, below expectations in a Reuters poll for a rise to 51.5, which would have been the highest in 17 months.

Chinese factories have sent mixed signals on the extent of their latest rebound. A separate manufacturing PMI issued by HSBC on Monday showed manufacturing grew less than expected last month on soft domestic demand.

“Although overall manufacturing is stable, development is not balanced,” said Zhao Qinghe, senior statistician at the NBS in a comment accompanying the PMI.

“The trend towards improvement for large and medium companies is consolidating, but small companies face difficulties,” he said, noting overcapacity and weak demand.

The official PMI is more weighted towards larger, state-owned companies than the HSBC version.

The data showed the sub-index for small firms at 48.4, down from 48.8 the previous month, while that for large companies rose to 52.1 from 51.8.

The overall new orders sub-index rose to 52.8 from the previous month’s 52.4, with export orders at 50.7 from 50.2.

Analysts have warned that China’s economic rebound could be short-lived due to its feeble foundation, and the government’s promise to avoid knee-jerk policy action that lifts growth in the short run but hurts the economy in the long run.

“The question is how sustainable is the recovery,” said Haibin Zhu, chief China economist for JP Morgan in Hong Kong.

“We are still cautious, we see the recovery peaking in Q3 and slowing in Q4 on a sequential basis.”