China’s Non-Manufacturing Industries Signal Rebound Ahead

China’s services industries rebounded from the slowest expansion in at least 19 months, adding to manufacturing gains that indicate the world’s second-biggest economy is recovering from a seven-quarter slowdown.

The purchasing managers’ index rose to 55.5 in October from 53.7 the previous month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing on Nov. 3. A separate services index released today by HSBC Holdings Plc and Markit Economics in Beijing fell to 53.5 in October from 54.3.

Growth in services along with two reports last week that showed a pickup in manufacturing industries may ease pressure on China’s leaders to roll out more stimulus as they start a once- a-decade power transfer Nov. 8. The nation’s central bank said the economy is expected to maintain “steady and relatively rapid growth” as earlier government policies to support expansion take effect.

“Investors expecting a big stimulus package after the Party Congress will likely be disappointed, although the new leaders will probably introduce some new projects,” said Huang Yiping, chief economist for emerging Asia at Barclays Plc in Hong Kong. Indicators including employment and inflation “suggest that even today, growth is probably not significantly below its potential,” he said.

The Shanghai Composite Index (SHCOMP), the nation’s benchmark stock gauge, fell 0.1 percent, snapping four days of gains, after the HSBC survey damped optimism for the economy. The MSCI Asia Pacific Index of stocks was down 0.3 percent as of 6:39 p.m. in Tokyo.

Expansion Cools

China’s economic expansion cooled to a three-year low of 7.4 percent in the third quarter as Premier Wen Jiabao’s campaign to curb consumer and property prices damped domestic demand and a sluggish global recovery capped the nation’s exports.

Bank of America Corp. (BAC) last week raised its estimate for fourth-quarter economic growth to 7.8 percent from 7.5 percent while Nomura Holdings Inc. projects a rebound to 8.4 percent after the government cut interest rates, accelerated investment spending and project approvals and cut taxes.

China Cosco Holdings Co. (1919), the nation’s biggest listed shipping company, reported a smaller loss in the third quarter compared with the same period a year earlier and China Shipping Container Lines Co. returned to profit as container rates increased.

“The impact of action to boost domestic demand has become more apparent and has bolstered market confidence,” Cai Jin, a vice chairman at the logistics federation, said in the Nov. 3 statement. The expansion in non-manufacturing industries in October “will help consolidate the foundation for steady growth,” he said.

Structural Reform

In its quarterly monetary policy report released Nov. 2, the People’s Bank of China said: “The preemptive fine-tuning of macro-economic policies and structural reform measures are gradually taking effect and the economy is expected to keep steady and relatively rapid growth.”

While priority will be given to ensuring stable growth, the government will stick to a prudent monetary policy and strengthen policy fine-tuning, it said.

Elsewhere in the Asia-Pacific region, Indonesia’s economic growth held above 6 percent for an eighth quarter as domestic consumption and rising investment countered an export slump, reducing the need for the central bank to cut interest rates.

Australia Sales

Australia said retail sales rose 0.5 percent in September from August, compared with the previous month’s pace of 0.3 percent. India’s services expanded at the slowest pace in six months in October, a survey by HSBC and Markit showed.

In Europe, jobless claims in Spain rose 128,242 in October from the previous month, for a net annual increase of 472,595, or about 11 percent.

Canada releases monthly data on building permits, while the Institute for Supply Management will provide its index on service industries in the U.S.

China’s non-manufacturing PMI is based on responses from purchasing managers at 1,200 companies in 27 industries including banking, retailing, construction and transportation.

September’s reading was the weakest since a new seasonally adjusted series of the gauge began in March 2011. A number above 50 indicates expansion.

A subindex of input prices climbed to 58.1, the highest reading since March, indicating growing pressure on costs, according to the federation. At the same time, a gauge of prices charged fell.

Input Prices

The organization’s survey of manufacturing purchasing managers released Nov. 1 showed an index of input prices jumped to its highest reading since April.

In its report, the central bank highlighted risks that inflation could accelerate. While domestic inflation is “currently stable,” prices are sensitive to expansion in demand and to stimulus policies, it said, adding that imported inflation also needs to be watched.

Quantitative easing policies in the U.S. and European Union could result in more cross-border capital flows and higher commodity prices, according to the central bank report.

“Inflation doesn’t constrain the PBOC’s policy easing in the fourth quarter,” Zhang Zhiwei, chief China economist at Nomura in Hong Kong, said in a note after the central bank’s report was published. “However, if it rises in 2013, as we believe is likely, the PBOC may need to swiftly shift its policy toward neutral or tightening.”

Consumer prices rose 1.9 percent in September from a year earlier, close to the slowest pace in two years and below the government’s 2012 target of about 4 percent.

Manufacturing Rebound

Signs of a recovery in China’s economy are growing. Manufacturing expanded in October for the first time in three months, according to the purchasing managers’ index released by the logistics federation and statistics bureau, while a similar gauge from HSBC and Markit posted the biggest gain since October 2010. Industrial companies’ profits in September recorded the first year-on-year increase since March, data showed Oct. 27.

Industrial-production growth accelerated for the first time in four months in September, retail sales expanded at the fastest pace since April and fixed-asset investment growth quickened.

Even so, in its quarterly report, the PBOC warned the economy still faces a “complicated” environment at home and abroad.

Fiscal Cliff

China needs to consolidate the growth momentum in the domestic economy and faces the “more pressing” tasks of economic restructuring and changing the pattern of its development, the PBOC said.

External demand remains weak due to the impact of the financial crisis and Europe’s debt woes may hurt the global economic recovery, it said. The U.S. is also facing problems related to its impending so-called fiscal cliff, the PBOC said, referring to the more than $600 billion of tax increases and budget cuts scheduled to take effect next year unless Congress acts.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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China Non-Manufacturing Gains Bolster Signs Economy to Rebound

Lam Yik Fei/Bloomberg

China Cosco Holdings Co., the nation’s biggest listed shipping company, reported a smaller loss in the third quarter compared with the same period a year earlier.

China Cosco Holdings Co., the nation’s biggest listed shipping company, reported a smaller loss in the third quarter compared with the same period a year earlier. Photographer: Lam Yik Fei/Bloomberg

5:20

Nov. 5 (Bloomberg) -- Robert Parker, a senior adviser at Credit Suisse Asset Management, talks about the airlines industry, HSBC Holdings Plc's third-quarter profit reported today and the outlook for the Chinese economy. He speaks with Caroline Hyde on Bloomberg Television's "On the Move." (Source: Bloomberg)