Boom time for factories brings risks of inflation
By Wang Yanlin |
December 2, 2010, Thursday
|
Print Edition
Print Edition
MANUFACTURING continued to expand in China last month, beating economists' forecasts and paving way for tightening policies, two surveys showed yesterday.
However, input costs at the factory gate surged to a 28-month high, indicating tougher challenges ahead on taming inflation.
The official Purchasing Managers' Index, a comprehensive gauge of industrial activities across the country, rose by 0.5 percentage points from a month earlier to 55.2 percent in November, the China Federation of Logistics and Purchasing said.
It turned out to be much stronger than a previous market projection of 54.8 percent.
A reading above 50 indicates expansion, and the index has been above that line for 21 months, with the pace in November the fastest in seven months.
But the component index for input costs climbed further from 69.9 percent in October to 73.5 percent last month, a record since July 2008, after the price of wood, cotton and leather reached the highest in the survey's history since 2005.
"The lasting price jump of commodities in the past four months created a big challenge for Chinese manufacturers to control costs," said federation analyst Zhang Liqun.
Other indices showed new orders rising by 0.1 percentage points to 58.3 percent and production increasing by 1.4 percentage points to 58.5 percent.
Meanwhile, an HSBC survey showed that its China manufacturing purchasing managers' index also strengthened 0.5 points from October to 55.3 last month, the strongest pace in eight months.
While the official PMI is weighted heavily towards big domestic companies, the HSBC survey is slanted more towards privately-owned and export-oriented firms.
Considerable price pressures were also indicated by November's survey, it said, with both output and input prices rising at a substantial rate.
Qu Hongbin, chief economist and co-head of Asian economic research at HSBC, said the better-than-expected reading of overall business conditions suggested a solid economic base, but he urged attention towards inflation.
"The faster rise in input prices against the backdrop of the Fed's second round of quantitative easing is likely to translate into concern about inflation," Qu said. "We expect China to step up its efforts of quantitative tightening and to raise interest rates by 25 basis points in the coming months to check inflation."
China twice ordered banks to put aside more money as reserves last month and lifted the benchmark interest rate in October to cool inflation and curb asset bubbles.
China's industrial production gained 13.1 percent year-on-year in October, 0.2 percentage points less than the pace in September. With a rising PMI, industrial production may stage a faster growth in November, analysts said.
"China is in a solid growth phase, even as inflation concern rises," said Nomura Holdings Inc in a note.
The country's gross domestic product expanded 10.6 percent year-on-year to 26.8 trillion yuan (US$4 trillion) in the first three quarters, with the pace in the third quarter settling at 9.6 percent.
However, input costs at the factory gate surged to a 28-month high, indicating tougher challenges ahead on taming inflation.
The official Purchasing Managers' Index, a comprehensive gauge of industrial activities across the country, rose by 0.5 percentage points from a month earlier to 55.2 percent in November, the China Federation of Logistics and Purchasing said.
It turned out to be much stronger than a previous market projection of 54.8 percent.
A reading above 50 indicates expansion, and the index has been above that line for 21 months, with the pace in November the fastest in seven months.
But the component index for input costs climbed further from 69.9 percent in October to 73.5 percent last month, a record since July 2008, after the price of wood, cotton and leather reached the highest in the survey's history since 2005.
"The lasting price jump of commodities in the past four months created a big challenge for Chinese manufacturers to control costs," said federation analyst Zhang Liqun.
Other indices showed new orders rising by 0.1 percentage points to 58.3 percent and production increasing by 1.4 percentage points to 58.5 percent.
Meanwhile, an HSBC survey showed that its China manufacturing purchasing managers' index also strengthened 0.5 points from October to 55.3 last month, the strongest pace in eight months.
While the official PMI is weighted heavily towards big domestic companies, the HSBC survey is slanted more towards privately-owned and export-oriented firms.
Considerable price pressures were also indicated by November's survey, it said, with both output and input prices rising at a substantial rate.
Qu Hongbin, chief economist and co-head of Asian economic research at HSBC, said the better-than-expected reading of overall business conditions suggested a solid economic base, but he urged attention towards inflation.
"The faster rise in input prices against the backdrop of the Fed's second round of quantitative easing is likely to translate into concern about inflation," Qu said. "We expect China to step up its efforts of quantitative tightening and to raise interest rates by 25 basis points in the coming months to check inflation."
China twice ordered banks to put aside more money as reserves last month and lifted the benchmark interest rate in October to cool inflation and curb asset bubbles.
China's industrial production gained 13.1 percent year-on-year in October, 0.2 percentage points less than the pace in September. With a rising PMI, industrial production may stage a faster growth in November, analysts said.
"China is in a solid growth phase, even as inflation concern rises," said Nomura Holdings Inc in a note.
The country's gross domestic product expanded 10.6 percent year-on-year to 26.8 trillion yuan (US$4 trillion) in the first three quarters, with the pace in the third quarter settling at 9.6 percent.
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