China’s factory activity expanded at a slightly faster pace in August, fuelled by rising infrastructure spending and improving global demand, a Reuters survey showed on Friday, as the Chinese economy continues to recover from the coronavirus crisis.

The official manufacturing Purchasing Manager’s Index (PMI) is expected to pick up moderately to 51.2 in August from July’s four-month high of 51.1, according to the median forecast of 16 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.

China’s vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy early this year. Pent-up demand, stimulus-driven infrastructure and surprisingly resilient exports have been the main drivers propelling the rebound, but private consumption is lagging as consumers remain cautious about spending.

Profits at China’s industrial firms last month grew at the fastest pace since June 2018, official data showed on Thursday.

“High frequency data such as blast furnace operating rates and crude steel daily output continued to climb in August, likely driven by rising infrastructure demand,” said Jiang Dongying, Shanghai-based analyst at CIB Research. “On foreign demand, the continued re-opening of overseas economies could help boost new export orders.”

UK-based industry consultancy Off-Highway Research said on Wednesday it now expects a 14% jump in China’s construction machinery sales due to government stimulus, having previously said it would dip 8% before COVID-19.

With infrastructure and property investment set to drive growth for the rest of the year, investment Bank HSBC this week raised its forecast for China’s 2020 GDP growth to 2.4% from 1.7%.

“With an uneven recovery and uncertain global growth, Beijing is focusing on reflating the domestic economy,” Qu Hongbin, chief China economist at HBSC, said in an article on Wednesday.

“We thus expect policy to remain supportive with further interest-rate reductions this year - a 25 basis-point cut in the average reserve-requirement ratio to 9.15% and the one-year loan prime rate trimmed by another 20 points to 3.65%.” The official PMI and its sister survey on the services sector will be released on Monday.

The Caixin manufacturing PMI will be published on Sept. 1, and analysts expect a reading of 52.7, easing from 52.8 in July. The Caixin services PMI survey will be out on Sept. 3.

Meanwhile, the Chinese stock market climbed on Friday, with blue-chip shares clocking their best week in four, as sentiment was supported by improving economic data and a slew of new listings.

The Shanghai Composite index closed up 1.6% at 3,403.81. The blue-chip CSI300 index jumped 2.4%. Stocks clung on to a momentum this week that was fuelled by upbeat data showing improving industrial profits and a surge in the start-up Chinext board.

The CSI300 rose 2.7% this week - its best in four - and Shanghai shares up 0.7% for the week, their best in three.

Historic reforms that saw relaxation in listing requirements and trading rules of the Shenzhen stock bourse, brought 18 companies to the start-up Chinext board this week.

The smaller Shenzhen index added almost 2%, ChiNext gained 2.6% while the tech-focused STAR50 fell 0.3%.

A surge in Chinext volumes and a rebound in earnings of companies in the Shanghai market aided investor sentiment this week, Morgan Stanley analysts said in a note.

They said second-quarter earnings season was more than half way through and Chinese firms had beaten estimates significantly, supporting their view that corporate earnings troughed in the first quarter and would stay on track for a recovery and achieve positive growth for 2020.

Founder Securities said investors should focus on individual stocks and not index-level volatility, and prepare for the listing of Ant Group, while China Central Securities recommended blue-chips that may pick up in a catch-up rally.

Ant Group, Alibaba’s fintech arm, filed for a dual listing this week in Hong Kong and on Shanghai’s Nasdaq-style STAR Market on Tuesday, which could be the world’s largest IPO.

The yuan was 0.38% stronger at 6.8681 per US dollar. About 27.13 billion shares were traded on the Shanghai exchange, more than the previous trading session’s 23.71 billion.  The yuan strengthened to a near seven-month high on Friday, after the US Federal Reserve’s announced an aggressive new strategy to lift employment and increased tolerance for higher inflation, and was on track for its fifth weekly gain.

Reuters