China Rebound Signaled in Rising Manufacturing Gauges: Economy

China’s manufacturing strengthened in August, with one index posting its biggest jump in three years, as improving demand abroad and at home underpins a recovery in the world’s second-largest economy.

An official Purchasing Managers’ Index jumped more than estimated to a 16-month high of 51.0, a government report showed yesterday in Beijing. A separate PMI released today by HSBC Holdings Plc and Markit Economics advanced to 50.1 last month from 47.7 in July, the largest gain since 2010. Readings above 50 signal expansion.

Asian stocks, the Australian dollar and copper rose after the Chinese data. Strengthening economies in the U.S. and Europe are poised to help sustain export demand in coming months, while confidence within China is also picking up after the government indicated it will defend the year’s growth goal and an interbank-market cash crunch eased.

“The recovery is being driven primarily by domestic demand but international demand is picking up too as we can see from the jump in new export orders,” said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, referring to a sub-index of the official PMI. “This will surely boost markets’ confidence in China’s recovery amid the turmoil in some emerging markets.”

The MSCI Asia Pacific Index of stocks increased 0.6 percent as of 5:49 p.m. in Tokyo.

The National Bureau of Statistics today lowered its estimate of growth last year, saying China’s economy expanded 7.7 percent instead of 7.8 percent, with services accounting for most of the revision. Either rate would be the slowest pace since 1999.

Orders Jump

The official PMI figure from the statistics bureau and China Federation of Logistics and Purchasing compared with the 50.6 median estimate of 31 analysts in a Bloomberg News survey and July’s 50.3 level. Estimates ranged from 50.4 to 52. The preliminary reading of HSBC’s index released Aug. 22 was 50.1, while the median estimate of 13 analysts was for a 50.2 final level.

“Growth in China’s manufacturing sector has started to stabilize on the back of a modest rebound of new orders and output,” Qu Hongbin, HSBC’s chief China economist, said in a statement. “We expect some upside surprises to China’s growth in the coming months.”

A separate report from SouFun Holdings Ltd. showed China’s new home prices jumped in August by the most since December amid a recovery in land sales and some easing of policies by local governments.

Risk Mitigated

JPMorgan Chase & Co. raised its estimate for China’s third-quarter economic growth to 7.6 percent from 7.4 percent and its projection for the final three months of the year to 7.5 percent from 7 percent, Hong Kong-based chief China economist Zhu Haibin said in a report yesterday. “Economic conditions are improving and the downside risk to economic growth has been mitigated in the near term,” Zhu said.

Deutsche Bank AG lifted its third-quarter estimate to 7.7 percent from 7.5 percent, according to an Aug. 22 note. Credit Suisse Group AG last week increased its 2013 forecast to 7.6 percent from 7.4 percent.

China’s GDP growth slowed to 7.5 percent in the second quarter from a year earlier, extending the longest streak of sub-8 percent expansion in at least two decades and putting the government at risk of missing its 2013 goal of 7.5 percent. Li signaled in July he won’t tolerate a slowdown beyond a 7 percent bottom line.

A sub-index of new orders in yesterday’s report rose to 52.4, the highest level since April 2012, and a gauge of input prices was the highest since February.

‘Good Tracker’

“Input prices are usually a good tracker of the strength of aggregate demand relative to supply so the reading suggests demand has strengthened notably,” said Helen Qiao, chief Greater China economist at Morgan Stanley in Hong Kong. “Sector-specific measures adopted recently are starting to show an impact but it also implies a lower probability for high-profile easing.”

Li has avoided a broad-based stimulus to reverse slowing growth, instead rolling out targeted measures that include tax cuts, boosting infrastructure spending including on railways, and supporting strategic industries such as renewable energy.

China’s top solar-panel makers are returning to profitability following two years of losses as higher demand and prices drive up margins. JinkoSolar Holding Co. last month reported second-quarter net income of $8 million, its first profit since the third quarter of 2011, as sales jumped 43 percent from a year earlier.

Export Orders

China’s export outlook improved, with a gauge of new overseas orders in yesterday’s report rising above 50 for the first time since March. While that contrasts with the contraction indicated in the export index of HSBC’s PMI, it tallies with trade reports from Asian economies and signs of stronger growth in the U.S. and Europe.

South Korea’s exports jumped 7.7 percent in August from a year earlier, the government said yesterday, the biggest gain since January.

The U.S. economy expanded more than analysts estimated in the second quarter, an Aug. 29 Commerce Department report showed. Economic confidence in the euro area rose to a two-year high, according to data last week.

Elsewhere in the world today, an HSBC-Markit index showed South Korean manufacturing contracted for a third month in August, while a similar gauge for India was below 50 for the first time since 2009. Markit PMI indexes for the U.K. and Italy showed faster expansions last month.

Japan Spending

Japan may revise second-quarter gross domestic product growth up after data today showed capital spending in the period was stronger than analysts estimated. Thailand and Indonesia both reported August inflation that was slower than estimated, while Indonesia said July exports fell at a faster rate than in the previous month.

China’s official PMI indicates the impact of the government’s crackdown on non-bank financing and its efforts to rein in credit growth have “so far been modest,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong.

Interest rates in China’s interbank market surged to record highs in June as the central bank allowed a cash crunch in order to squeeze speculative lending and curb shadow banking. Aggregate financing, the broadest measure of new credit that includes banks’ off-balance-sheet loans, corporate bond and stock issues, fell to a 21-month low in July.

While the campaign will help ease the risks of a financial crisis, it may also curb economic expansion as companies find it harder to get funding.

“The current rebound in growth is still benefiting from loose monetary and credit conditions earlier this year,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. “But since May, conditions have tightened considerably and that will weigh on investment and growth toward the end of the year.”