China Manufacturing Beats Estimates Amid Risks to GrowthBloomberg News
Chinese manufacturing growth beat analyst estimates in November, indicating the nation’s economic recovery is sustaining momentum amid government efforts to rein in credit growth.
The Purchasing Managers’ Index was 51.4, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday, exceeding 24 out of 26 estimates in a Bloomberg News survey. A separate gauge from HSBC Holdings Plc and Markit Economics today was 50.8, topping all 13 analysts’ projections. Numbers above 50 signal expansion.
Weakness in small companies and employment point to underlying fragility as Premier Li Keqiang prepares to push through policy changes aimed at giving market forces a bigger role in the world’s second-largest economy. China faces headwinds including factory overcapacity and excessive corporate debt even as industrial investment picks up.
“The headline looked pretty good; the details were not as good,” Robert Subbaraman, Singapore-based chief economist for Asia excluding Japan at Nomura Holdings Inc., said in a Bloomberg Television interview, citing readings on small companies, orders and inventories. Growth “probably peaked” in the third quarter and will slow this quarter and next year, Subbaraman said.
China’s benchmark Shanghai Composite Index of stocks fell 0.6 percent, while the Australian and New Zealand currencies rallied against the U.S. dollar.
Economists estimate growth in gross domestic product will slow to 7.5 percent next year from 7.6 percent this year, according to the median projection in Bloomberg News surveys last month. The government set a target for 7.5 percent expansion in 2013.
“Momentum seems to be quite stable at the moment so policy makers can be quite relaxed,” said Wang Tao, chief China economist at UBS AG in Hong Kong. “If anything, growth in the fourth quarter is not going to weaken as much as many people had expected,” Wang said, with “robust” production momentum and expanding domestic and export orders “pointing to pretty stable growth ahead.”
“If at some stage next year there is some kind of negative shock -- exports collapse for some reason or there’s an unexpected credit freeze, they may relax policy a bit” because the government will defend its 7 percent lower limit, Wang said.
Yesterday’s PMI was the same reading as October, which was an 18-month high. The median estimate was 51.1, with projections ranging from 50.8 to 51.5.
The PMI for large companies in yesterday’s report rose to 52.4 from 52.3 in October, the highest level in 19 months, while the gauge for small companies slid to 48.3 from 48.5, the statistics bureau said. The gap between indexes of output and new orders widened for a second month, indicating demand is expanding more slowly than production, the agency said.
“It’s clear that the improvements are coming from the big enterprises and there’s little improvement in the structure” of demand, said Hu Yifan, chief economist at Haitong International Securities Group Ltd. in Hong Kong. “Small companies will only recover when the overall macroeconomic situation recovers, once the economy starts to push from the bottom.”
The PMI survey from the statistics bureau is based on responses from purchasing managers in 3,000 manufacturing companies. The HSBC survey is based on responses from managers at more than 420 businesses, and is weighted toward smaller private companies.
HSBC’s PMI compared with October’s 50.9 reading. While the survey showed “relatively steady growth momentum,” a contraction in employment and slower restocking “call for a continuation of accommodative policy,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement.
The official survey showed a 49.6 reading for the employment index, up from 49.2 in October.
A more forceful government crackdown in China on industrial overcapacity, weaker external demand and central bank measures to rein in credit growth and shadow banking, may limit a stronger rebound in manufacturing.
China in July ordered more than 1,400 companies in 19 industries to cut excess production capacity and the Communist Party’s reform document said local officials will be evaluated on controlling overcapacity.
The Hebei provincial government said last month it demolished iron and steel furnaces and Xingtai Longhai Iron & Steel Group Co., a unit of China’s biggest producer, Hebei Iron & Steel Group Co., has halted production because of operational difficulties, according to Shenzhen stock exchange filings from customer Hangzhou Boiler Group Co.
Companies’ borrowing costs are rising as money-market interest rates increase amid the central bank’s efforts to rein in credit growth. The seven-day repurchase rate, a gauge of funding availability in the banking system, averaged 4.54 percent in November, up from an average 3.57 percent in May.
“The rising funding costs will eventually be passed on to the corporates, discouraging further investment expansion,” Liu Li-Gang and Zhou Hao, China economists at Australia & New Zealand Banking Group Ltd., wrote in a report yesterday.
Elsewhere in the Asia-Pacific region, South Korea reported consumer prices rose from a year earlier in November at a faster pace. Australia’s building approvals fell in October from the previous month by less than economists estimated.
November PMI readings to be released today by Markit for the euro region, France and Germany will be in line with initial estimates, according to economists surveyed by Bloomberg. In the U.S., the Institute for Supply Management may say manufacturing growth slowed last month, while the government will publish construction-spending figures for September and October.
— With assistance by Nerys Avery