Oct 25, 2013

    Manufacturing boosts outlook for China

    ACTIVITY in China's giant manufacturing sector picked up this month, a preliminary survey showed yesterday, buoyed by strong new orders and suggesting the economy may have stabilised even though a strong rebound remains elusive.

    The flash Markit/HSBC Purchasing Managers Index (PMI) stood at 50.9 this month, marking a seven-month high.

    New orders rose to 51.6, well above the 50 line separating expansion from contraction.

    This early reading of China's monthly economic performance offers some positive news after recent disappointing export figures and the previous month's manufacturing PMI, which had shown weak domestic demand.

    "What this number shows is that China's economy is still on course for decent growth - not the kind of spectacular growth that we were used to in the past, but enough growth to keep it above the government's bottom line," Mr Louis Kuijs, chief China economist at Royal Bank of Scotland Group, said in a Bloomberg Television interview.

    China's economy grew at its quickest pace this year between July and September, but many economists see growth slowing as global demand remains soft and as Beijing moves to restructure the economy towards one driven more by consumer demand than investment and credit.

    Stocks fell as the manufacturing report was overshadowed by concern that the government could tighten credit and clamp down further on the property market.

    "The pickup in the flash PMI suggests that economic momentum may hold up in October, but we maintain our view that growth will slow" in the fourth quarter and next year "as monetary policy tightens to contain inflation and financial risks", Mr Zhang Zhiwei, chief China economist at Nomura Holdings, said.

    Officials are wrestling with controlling risks from shadow banking and local-government debt while keeping growth above a bottom line of 7 per cent.

    China is holding up pretty well compared to other countries, amid talk that the US Federal Reserve will slow its monetary stimulus, Mr Kuijs said.

    "When financial conditions are loose, everybody is doing fine and everybody is growing; but then, when the Fed starts to talk about tapering, you see who is vulnerable to these things - China is not," he added.