China Manufacturing Expands at Fastest Pace in Two Years

China’s manufacturing is expanding at the fastest rate in two years, according to a private survey of companies, bolstering prospects that economic growth will accelerate for a second straight quarter.

The preliminary reading of a Purchasing Managers’ Index was 51.9 in January, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 51.5 final reading for December and the 51.7 median estimate of 17 analysts surveyed by Bloomberg News.

The data suggest that China’s expansion at the start of 2013 will equal or exceed its 7.9 percent clip in the fourth quarter. Sliding Japanese exports and below-forecast growth in South Korea reported today underscore Asian economies’ dependence on China as austerity measures in Europe limit demand.

“Despite the still-tepid external demand, the domestic-driven restocking process is likely to add steam to China’s ongoing recovery in the coming months,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement.

Asian stocks extended losses after North Korea threatened to conduct a nuclear test. The Shanghai Composite Index fell 0.8 percent, retreating from gains of as much as 1.8 percent. The MSCI Asia Pacific Index of stocks dropped 0.1 percent as of 4:05 p.m. Tokyo.

Japan Exports

Japan’s shipments abroad dropped 5.8 percent in December from a year earlier, compared with a median estimate for a 4.2 percent decline in a Bloomberg News survey of 23 economists. The annual trade deficit also swelled to a record, bolstering the case for Prime Minister Shinzo Abe to weaken the yen even as trade tensions mount.

South Korea’s economy grew 1.5 percent from a year earlier, unchanged from the expansion in the third quarter, the Bank of Korea said today. That compared with the median 1.8 percent estimate of 12 economists.

Fan Gang, a former adviser to China’s central bank, said in an interview yesterday that the risk of the nation’s economy overheating has resurfaced as new regional-government officials try to boost development.

If confirmed in the final reading Feb. 1, the HSBC gauge would be at the highest level since January 2011. A separate, government-backed purchasing managers’ index will be released the same day. The official gauge showed a third month of expansion in December with a reading of 50.6, unchanged from November.

Survey Responses

The HSBC gauge’s preliminary reading, called the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of more than 420 companies. The data for this month’s reading were collected from Jan. 11-22.

An employment index rose to a 20-month high of 51.2 while an output gauge increased to a 22-month high of 52.2, HSBC said. New export orders showed an expansion with a 50.1 reading, compared with 49.2 in December.

Elsewhere in Asia, Vietnam’s inflation accelerated more than economists estimated in January, while the Philippine central bank is forecast to keep borrowing costs unchanged at its first interest-rate meeting of the year. Hong Kong’s statistics office may say export growth slowed last month, a survey showed.

Data later today may show the euro area’s services and factory output had the smallest contraction in 10 months in January, while Spain’s unemployment rate climbed to 26 percent last quarter, according to Bloomberg surveys. The U.S. Labor Department may say jobless claims rose in the week through Jan. 19.

China Retailers

Gains in China’s industrial output and retail sales picked up pace in December, a statistics bureau report showed Jan. 18. Industry and construction accounted for about 45 percent of GDP last year, compared with 45 percent for services and 10 percent for agriculture, according to statistics agency data.

China’s industry ministry is forecasting a 10 percent rise in factory output this year, unchanged from 2012’s pace.

Alcoa Inc., the largest U.S. aluminum producer, said Jan. 8 that it sees global demand growth for the commodity recovering to 7 percent in 2013 as China’s economic rebound drives demand for cans, transport and office buildings.

The government has paused from easing monetary policy since July after two interest-rate cuts and three reductions in banks’ reserve-requirement ratio. At the same time, authorities have accelerated investment-project approvals, increased infrastructure spending and cut taxes for small businesses to boost domestic demand and support growth.

Scrapped Forecasts

Economists are scrapping forecasts for the central bank to lower the reserve ratio. The median estimate of 20 analysts in a Bloomberg survey conducted Jan. 18-23 is for no change in the ratio throughout 2013, compared with forecasts of a 0.5 percentage-point cut in last month’s survey.

Analysts maintained projections for an unchanged benchmark lending rate at 6 percent this year. The median economic-growth forecast for 2013 was also unchanged at 8.1 percent in the Bloomberg survey.

Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said he expects no cuts in interest rates or the reserve ratio this year as growth recovers and inflation accelerates. The HSBC index “reinforces our view that GDP growth will pick up further” in the first quarter to 8.2 percent, Zhang said in a note today.

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