Sep 24, 2014

    Stronger exports boost China's economy amid property slump


    A CHINESE manufacturing gauge unexpectedly increased this month, suggesting export demand is helping the economy withstand a property slump.

    The preliminary Purchasing Managers' Index from HSBC Holdings and Markit Economics was at 50.5, up from last month's final reading of 50.2.

    The report contrasts with last month's data, which showed weaker growth, and may ease pressure for broader stimulus than the limited liquidity injections and expedited spending on railways that Premier Li Keqiang's government has enacted. With the euro region and Japan battling to shore up expansion, the positive data would aid a patchy global recovery.

    "We thought the weakness would continue, but there is a slight pick-up, so this is definitely positive for the market," said Lu Ting, Bank of America's head of Greater China economics in Hong Kong.

    Measures of new orders and new export orders increased at a faster rate, the report showed.

    Robust export demand is helping China weather a property slump. China's trade surplus climbed to a record last month as exports rose on the back of increased shipments to the United States and Europe.

    New-home prices fell in all except two of the 70 cities monitored by the government last month, the statistics bureau said last week, the most since January 2011, when Beijing changed the way it compiles the data.

    In the latest step aimed at supporting the sliding property market, China's four biggest banks may loosen terms for mortgage lending. Criteria for loans to first-home buyers may be eased and people who have paid outstanding mortgages may be considered eligible for first-home status, the Guangzhou-based 21st Century Business Herald reported.

    "I'm optimistic on the Chinese economy, despite the correction underway in the residential sector," said Jim Chronis, chief economist at Ausbil Investment Management in Sydney. Fiscal stimulus, targeted monetary easing and export demand will help sustain growth, Mr Chronis said.

    The final HSBC-Markit PMI reading for this month is scheduled for release on Sept 30.

    "The absence of deteriorating conditions for most firms, both in terms of hiring and margins, does much to explain Beijing's reluctance to introduce more large-scale stimulus," Leland Miller, China Beige Book International president, said.

    Economists' bets that there would be no overt policy easing are in line with remarks by senior leaders such as Finance Minister Lou Jiwei, who said over the weekend that China would not dramatically alter its policy based on any one indicator.

    The government would not make major policy adjustments in response to changes in individual indicators, he said, echoing comments made by Premier Li Keqiang earlier this month.

    But the government's promises to desist from ramping up credit supply are increasingly being tested by a run of data showing that the world's second-biggest economy is sliding into a deeper slowdown.

    A hefty drop in employment could raise alarm bells for the government, which has indicated it will tolerate slower economic growth below 7.5 per cent for the year as long as employment is not affected.

    "The real estate risk is already materialising," said Dariusz Kowalczyk, an economist at Credit Agricole Corporate and Investment Bank in Hong Kong. "This will keep gross domestic product growth at a depressed level of around 7 per cent year-on-year this quarter."

    Still, Asian markets found consolation in the PMI poll that China's economy was not faring as badly as some feared. Stock markets and the Australian dollar clawed back some of their early losses, while Shanghai stocks rose.