(Corrects 11th paragraph to say index rose to the highest since March.)
Nov. 4 (Bloomberg) -- China’s Communist Party leaders will enter a policy-making summit this week with the economy on an upswing, services and manufacturing surveys show.
A non-manufacturing Purchasing Managers’ Index rose to the highest level this year in October, a government report showed yesterday. The increase follows faster-than-estimated growth in two manufacturing indexes last week.
Signs of sustained strength in the world’s second-largest economy may give President Xi Jinping and Premier Li Keqiang more confidence in tackling reforms. At the same time, excessive credit growth, rising local-government debt and weaker export momentum may cap a stronger recovery from a two-quarter slowdown.
“Growth momentum will still be relatively robust” in the fourth quarter, said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. “The government will tone down its pro-growth rhetoric but there won’t be a significant tightening of monetary policy as new leaders still need a stable economic and financial environment to consolidate their power base.”
Lu estimates gross domestic product will rise 7.7 percent in the fourth quarter from a year earlier, down from 7.8 percent in the July-September period.
China’s top party officials will meet in Beijing from Nov. 9-12 to map out a blueprint for reform as the country heads for its slowest growth in more than two decades.
GDP will increase 7.6 percent this year, according to the median estimate of 52 economists surveyed by Bloomberg last month. That’s down from 7.7 percent in 2012 and the same pace as 1999, which was the weakest expansion since 1990. Growth may slide to 7.4 percent in 2014, according to the median projection of 47 analysts.
Premier Li reiterated that the government must balance the need for economic restructuring with a reasonable pace of growth to ensure sufficient employment, China National Radio reported yesterday, citing comments he made at a meeting with academics and business leaders.
The non-manufacturing PMI rose to 56.3 in October from 55.4 in September, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday. A number more than 50 indicates an expansion. HSBC Holdings Plc and Markit Economics will release a services PMI for October tomorrow. Their index fell to 52.4 in September from 52.8 in August.
“The room for a further improvement in the non-manufacturing PMI is limited so we should still avoid being too bullish,” Lu said, pointing to a decline in new orders and a contraction in export orders in yesterday’s report.
A manufacturing index from HSBC and Markit rose to the highest level since March in October, according to a Nov. 1 report. The federation’s gauge advanced to an 18-month high driven by faster output, while measures of new orders and export orders declined.
“Like the manufacturing PMI, activity in the non-manufacturing PMI appears to have run ahead of demand,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong, pointing to a 1.8 percentage point drop in the new order sub-index in yesterday’s report and a widening gap between a gauge of business activity and new orders.
“Unless demand catches up, this pace of activity expansion will not be sustainable,” he said.
Xi and Li have indicated that the days of annual GDP expansion of more than 10 percent are over. The government will focus on policy changes to support more sustainable growth that will reduce inequality and doesn’t damage the environment.
Xi said a blueprint for “comprehensive reform” will be put forward to the third plenary session of the Communist Party Central Committee, according to a Nov. 2 report from the official Xinhua News Agency. The nation is transforming its mode of development and readjusting its economic structure through a new style of industrialization, urbanization, technology and agricultural modernization, he said.
The economy is entering a phase of “transformation” involving a slowdown in growth “from a high speed to a medium-to-high speed,” Li said in September. He has also signaled that the government’s bottom line for expansion is 7 percent, the level needed to meet the Communist Party’s target of doubling per capita income in the decade through 2020.
Industries including leisure, e-commerce and transport are becoming a bigger part of the economy, supporting the government’s efforts to shift the focus of growth away from investment and exports. Alibaba Group Holding Ltd., China’s biggest e-commerce company, plans a fivefold increase in the number of college graduates it hires to 1,000 and may offer them as much as triple last year’s average pay.
Service industries accounted for about 45 percent of GDP last year, according to statistics bureau data, up from 41 percent in 2003. The government is seeking to increase the share to 47 percent by 2015, according to its five-year plan. In the U.S., services comprise about 90 percent of the economy.
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