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October 2, 2009

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Purchasing index steps again toward recovery

A WIDELY watched indicator of future Chinese manufacturing activity expanded at a faster pace in September, adding impetus to expectations that government stimulus spending is forming the base for a steady economic recovery.

The Purchasing Managers Index, released yesterday, edged up to 54.3 from 54 in August, its seventh consecutive month showing expansion. Any number above the 50 mark on the 100-point index indicates expansion; anything below contraction.

The data provide "further evidence that China is heading toward a recovery," said Zhang Liqun, an analyst at the Development Research Center of the State Council, China's Cabinet.

Still, China needs to shift away from growth that's too heavily dependent on government spending, Zhang added.

"The growth should become more market-driven, bolstered more by spending from companies and consumers," he said.

Many economists consider the Purchasing Managers Index, published by the China Federation of Logistics and Purchasing, a more reliable indicator of China's economic outlook than gross domestic product because it includes forward-looking elements such as new orders.

The survey is based on responses from managers who oversee purchasing for about 700 Chinese companies.

Fifteen of the 20 sectors included in the September index showed readings above 50.

The output portion of the index rose to 58 from 57.9 a month earlier, and the new business orders index climbed half a point to 56.8.

On a sector-by-sector basis, raw materials and energy companies registered below 50 in the latest index, while tobacco manufacturers, beverage makers and other producers of consumer goods showed readings above 60, the highest in the September survey.

That suggests the government's 4 trillion yuan (US$586 billion) stimulus spending program, announced late last year, is bearing fruit. Gross domestic product accelerated to 7.9 percent in the second quarter as the government ramped up efforts to boost industrial production with public works spending and boost consumer spending.


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