China’s Manufacturing PMI Expands for a Second Month
China’s official manufacturing index rose to the highest level in seven months as new orders and export demand climbed, underscoring optimism the economy is recovering after a seven-quarter slowdown.
The Purchasing Managers’ Index was 50.6 in November, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. That compares with the 50.8 median estimate in a Bloomberg News survey of 28 analysts and 50.2 the previous month. A reading above 50 indicates expansion.
The report reduces pressure on China’s new leadership to roll out more policies to support a growth rebound as they push ahead with overhauling state-owned enterprises and boosting consumption. Confidence in China’s economy is at the highest in more than a year amid faith that Xi Jinping’s administration will improve the investment climate, a Bloomberg investor poll last week showed.
“It’s especially encouraging that the rise in the PMI was mainly driven by new orders, which suggests output will be further boosted in coming months,” said Lu Ting, chief Greater China economist at Bank of America Corp. in Hong Kong. “Beijing will maintain the current policy stance, which is featured as marginally pro-growth without big-bang stimulus.”
Lu said he expects no cut in interest rates and at most one reduction in banks’ reserve requirement ratio before the end of the year. He estimates economic growth will accelerate to 7.8 percent in the fourth quarter from a year earlier after a 7.4 percent pace in the previous three months, which was the slowest in three years.
The preliminary November reading of a separate manufacturing survey from HSBC Holdings Plc (HSBA) and Markit Economics, which focuses more on smaller businesses, showed the first expansion in 13 months. The final figure is due tomorrow.
The yuan had its fourth monthly gain, its longest winning streak in more than a year, on signs economic growth is recovering. The currency climbed 0.2 percent in November to 6.2267 per dollar in Shanghai and on Nov. 27 reached the highest level since China unified official and market exchange rates in 1993.
The federation’s PMI is based on responses from purchasing managers at 820 companies in 31 industries. Yesterday’s report showed a gauge of new orders expanded for a second month to its highest level since April after contracting for the previous five months, while the output sub-index was the highest in six months at 52.5.
A measure of export orders rose above 50 for the first time since May, with gains boosted by Christmas demand, the federation said in a separate statement.
“Economic growth will continue to maintain a moderate rebound,” Zhang Liqun, a senior researcher at the Development Research Center of the State Council, said in the federation’s release. The data “indicate that destocking is now shifting to restocking, which means industrial production will continue to ramp up.”
Among respondents to the Nov. 27 quarterly global poll of 862 investors, analysts and traders who are Bloomberg subscribers, 72 percent see the Chinese economy improving or remaining stable, up from 38 percent in September’s survey. Fifty-three percent said they’re more optimistic about the effect of Xi’s policies on investors, up from 42 percent who were asked in September about President Hu Jintao.
China’s gross domestic product may expand 7.7 percent in the fourth quarter from a year earlier, the first acceleration in eight quarters, according to the median estimate of 29 analysts in a Bloomberg survey.
Economists have scrapped projections for any easing of monetary policy in the rest of 2012. Analysts surveyed by Bloomberg News Nov. 14-19 see China holding the reserve- requirement ratio for the biggest banks at 20 percent through the end of the year, based on the median estimate. That compares with the median forecast for a 0.5 percentage-point cut in October’s survey.
While China’s central bank has refrained from monetary easing since a cut in interest rates in July, the government is making efforts to sustain investment momentum. The top economic- planning agency on Nov. 26 posted approvals on its website for three transport projects with a total value of 75.2 billion yuan ($12.1 billion), expanding potential sales for companies including China CNR (601299) Corp. and CSR Corp., the country’s two biggest train makers.
“Supportive policies on the domestic level have led to a gradual rebound of the manufacturing sector,” said Hu Yifan, chief economist at Haitong International Securities Co. in Hong Kong, who previously worked at the World Bank. She estimates fourth-quarter growth will accelerate to 7.9 percent.
At the same time, Zhang from the Development Research Center said the decline in a gauge of input prices in the PMI “shows the market’s confidence is not solid enough and the strength of the economic recovery is still weak.” The reading dropped to 50.1 from 54.3 the previous month.
A measure of employment fell to 48.7, the steepest drop in the gauge’s six-month stretch of contraction and the PMI index for smaller companies remained below the 50 line that divides expansion from contraction, the report showed.
“We remain cautious about the sustainability of the recent improvement, worrying that much fragility persists,” Alistair Thornton and Ren Xianfang, Beijing-based analysts with IHS Global Insight, wrote in a report after the data release. “Whilst activity is resuming, economic efficiency is declining,” they said, pointing out that in many parts of the economy, local state-owned enterprises are “riding to the rescue of debt-laden firms which, in a pure market economy, would be going bust.”
--Zhou Xin, Zheng Lifei. With assistance from Sandi Liu in Hong Kong, Regina Tan and Penny Peng in Beijing. Editors: Nerys Avery, Paul Tighe
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