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Survey shows China's manufacturing sector still going strong

Text by News Wires

Latest update : 2009-11-02

China's manufacturing sector grew in October at its fastest rate in 18 months, a survey suggested on Sunday, offering a further sign of the country's quick economic recovery.

REUTERS - China's vast manufacturing sector expanded in October at the fastest rate in 18 months, a survey showed on Sunday, and economists said they expected the momentum to be sustained in the coming months.

The purchasing managers' index (PMI) issued by the China Federation of Logistics and Purchasing rose to 55.2 last month, the highest level since April 2008, from 54.3 in September.
It was the eighth month in a row that the official PMI has stood above the boom-bust line of 50. The index, which is designed to provide a timely snapshot of business conditions in industry, slumped as low as 38.8 last November as the global financial crisis raged.
Zhang Liqun, a researcher with the Development Research Center, a think-tank under the State Council, China's cabinet, said the report showed the economy was now firmly on the recovery track.
In a comment for the logistics federation, Zhang said gains in the sub-indexes for imports and new export orders reflected growing demand both at home and abroad.
"All these show that economic growth will accelerate in the future, and the growth rate in the fourth quarter is likely to be 9.5 percent," he said.
Annual gross domestic product growth accelerated to 8.9 percent in the third quarter from 7.9 percent in the second.
The report was not universally strong. Growth in employment slowed, inventories of finished goods fell and input price inflation eased.
But Jing Ulrich, chairman of China equities and commodities at J.P. Morgan, agreed that the survey -- especially the forward-looking components -- suggested sustained expansion in industry.
"While public investment may moderate in the months ahead, private real estate investment, consumer spending and export demand should drive growth in the coming months," she said in a note to clients.
Ulrich singled out a revival in property construction as developers replenish housing inventories. New starts rose 56 percent in September from a year earlier.
Construction -- infrastructure as well as property -- accounts for a large chunk of China's demand for materials, including 52 percent of steel consumption, which grew 44 percent in September from a year earlier, she noted.
Like other countries, China has started to debate the timetable for a gradual withdrawal of the monetary and fiscal stimulus it injected to support the economy through the crisis.
The government is almost half-way through a 4 trillion yuan ($585 billion) pump-priming programme, while the country's mainly state-owned banks have increased their loan books by a third over the past year. In the first nine months of the year they lent a whopping 8.67 trillion yuan ($1.27 trillion).
Ulrich, voicing the consensus view, said a broad-based macroeconomic tightening was unlikely over the rest of 2009.
"Until greater inflationary pressure and a sustained recovery in exports become apparent, pro-growth economic policies are expected to remain in place.
"Messages from the authorities suggest that they are not planning to withdraw stimulus measures in the near term, although the government is clearly fine-tuning policies for sectors that are prone to overcapacity," she said.
That fine-tuning is also taking the form of orders to banks to ease up on the pace of lending. Yu Song and Helen Qiao at Goldman Sachs said this tightening was positive because it would slow credit growth to a rate that was sufficient to fuel the recovery while reducing overheating pressures down the road.
"We expect October activity growth data to continue to show firm readings when they are released on November 11," the economists told clients.


Date created : 2009-11-01