China Manufacturing Gauge Increases to Six-Month High

A Chinese manufacturing index rose to a six-month high in September, signaling that a rebound in the world’s second-largest economy is gaining steam.

The preliminary reading of 51.2 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compared with a 50.9 median estimate from 14 economists surveyed by Bloomberg News. The gauge was at 50.1 in August. A euro-area manufacturing and services gauge rose more than estimated this month, a separate Markit report showed today.

The Shanghai Composite Index and Australian dollar rose on optimism that China’s growth is picking up, boosting Premier Li Keqiang’s odds of meeting the year’s 7.5 percent expansion goal. The government’s broadest measure of credit rose more than forecast in August, indicating that leaders are committed to achieving targets even at the cost of adding financial risks.

“China’s growth rebound has continued to gather some momentum, especially in exports,” said Wang Tao, chief China economist at UBS AG in Hong Kong. Today’s reading “adds further support” to UBS’s previous increase in its third-quarter growth forecast to 7.7 percent from 7.5 percent, Wang said.

The final reading of the manufacturing PMI from HSBC and Markit will be released Sept. 30. The National Bureau of Statistics releases the government’s manufacturing PMI, with a bigger sample size, on Oct. 1. The official gauge rose to 51.0 in August, the highest since April 2012.

Markit’s composite PMI for the euro area rose to 52.1 from 51.5 in August, according to a preliminary reading. The median estimate of 25 analysts was for 51.8. Readings above 50 signal expansion.

Output Gains

The HSBC report on China showed increases in output, new orders, export orders and prices, while employment fell at a slower rate. The Flash PMI from HSBC and Markit is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers.

The Shanghai Composite Index rose 1.3 percent, the most since Sept. 9. The MSCI Asia Pacific Index of stocks was up 0.3 percent at 5:26 p.m. in Tokyo.

Today’s reading adds “further evidence to China’s ongoing growth rebound,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in a statement. “The firmer footing was supported by simultaneous improvements of external and domestic demand.”

Data released earlier this month showed China’s industrial output grew in August at a faster pace and the broadest measure of new credit almost doubled from the previous month to 1.57 trillion yuan ($257 billion). Officials are grappling with risks from shadow banking.

Trade Data

Exports rose 7.2 percent in August from a year earlier, the most since April, before a government crackdown on fake trade data curbed growth figures.

Citigroup Inc. earlier this month raised its third-quarter growth forecast to 7.8 percent from 7.4 percent, while Deutsche Bank AG increased its estimate to 7.9 percent from 7.7 percent, the second boost in a month.

Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said he doesn’t expect the recovery to be sustainable beyond November as monetary policy may tighten after a Communist Party meeting.

“We expect the government to shift its focus away from the speed of growth, towards efforts to rebalance the economy and improve the quality of growth,” Zhang said in a note today, reiterating his forecast for growth to slow to 6.9 percent next year.

Patrick Kron, chief executive officer of Alstom SA, a French maker of power equipment and trains, said in an interview last week that the market opportunities in China are “massive” even if growth has slowed.

China needs to keep annual growth above 6.8 percent until 2020 to meet a target of doubling gross domestic product from 2010, a goal set at last year’s Communist Party Congress, according to a Sept. 17 speech by Vice Finance Minister Zhu Guangyao posted on the Finance Ministry website yesterday.

Also today, Israel sets interest rates, with most economists forecasting that the central bank will keep policy on hold.

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