HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled a fourth successive monthly increase of Chinese business activity during August. The HSBC Composite Output Index posted at 52.8, up from 51.6 in July, and signalled a robust rise in activity levels. Furthermore, it was the strongest expansion of business activity in 17 months.

The improvement in the headline index largely reflected the growth recovery recorded in the service sector, as production growth slowed at manufacturing firms. Service sector business activity expanded at the fastest rate since March 2013, and contrasted with a stagnation of activity in the previous month. This was signalled by the HSBC China Services Business Activity Index posting at 54.1, up from the record low of 50.0 in July.

Activity growth was supported by further expansions of new business at both manufacturers and service providers in August. That said, the rate of new order growth at manufacturers eased to a three-month low. Meanwhile, service sector firms recorded a solid expansion of new business that was the strongest since January 2013. At the composite level, new work rose at a moderate pace that was slightly faster than in July.

August data continued to point to divergent trends in employment across both the manufacturing and service sectors. Staffing levels fell for the tenth successive month at goods producers, and at a modest pace, while service providers noted a further moderate expansion of payroll numbers. Overall, employment at the composite level fell marginally over the month.

Manufacturers signalled the third monthly rise in outstanding business in August, albeit only slight. In contrast, backlogs of work at service sector firms fell for the second straight month and at the quickest rate since November 2012. Consequently, unfinished work declined slightly for the second month running at the level.

Average input costs continued to increase at service providers in August, while manufacturers signalled a renewed fall in cost burdens. The rate of input price
inflation in the service sector was slower than in July and moderate overall. As a result, input costs rose at a marginal pace that was the weakest in three months at the composite level.

Output charges set by manufacturers fell slightly in August, offsetting a slight increase in July. Meanwhile, service sector firms raised their selling prices for the first time since March, albeit fractionally. Anecdotal evidence suggested that stronger client demand had led to increased pricing power in the sector. At the composite level, output prices fell marginally over the month.

August survey data signalled that Chinese service providers were confident toward the 12-month business outlook. Furthermore, the degree of positive sentiment
strengthened to a five-month high.

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