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December 2, 2016

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PMI growth exceeding expectations

CHINA’S economy continued to show signs of stabilization in November with two separate manufacturing surveys pointing to growth that was better than expected.

The official Purchasing Managers’ Index, which measures large state-owned factories, was 51.7 last month, matching a previous high in July 2014 as the highest reading since April 2012, according to the National Bureau of Statistics.

That compared to October’s 51.2. The 50-point mark separates growth from contraction.

The Caixin manufacturing PMI, which focuses on medium-size companies not included in the official index, beat analysts’ forecasts of 50.8, although it fell to 50.9 from October’s 51.2.

China’s manufacturing sector has shown signs of picking up in recent months, buoyed by government spending on infrastructure and the housing boom.

A jump in commodity prices also boosted profits for firms selling building materials, as their financial results improved due to a national campaign to cut production.

The purchasing price sub-index continued to increase by 5.7 percentage points to 68.3, an indication of rising inflationary pressures on the supply side.

Zhao Yang, chief strategist with Nomura Securities Co, said: “We think the improvement in new export orders might have been helped by yuan depreciation. As we expect the currency to continue depreciating, this bodes well for China’s export outlook next year.”

Factory output quickened in November to 53.9 from 53.3 in the previous month. Total new orders rose to 53.2 from October’s 52.8, while new export orders also increased to hit a 12-month high of 50.3.

A separate reading of the services sector also showed the pace of growth quickening in November, with its reading at 54.7, the strongest since June 2014.

Many analysts said full-year growth could hit the government target of 6.5 to 7 percent.

Lian Ping, chief strategist at Bank of Communications, told a forum in Shanghai yesterday that he expected the economy to expand by 6.7 or even 6.8 percent this year, and that it was less likely that growth would decline by the end of the year.

“The pick-up of the economy was mainly lifted by increasing infrastructure projects to stem growth,” Lian said. “With the rising producer price index, upstream activity picked up very quickly, and it will continue to rise in December, hopefully.”

Lian also noted the surge in public private partnership projects pushed forward by the government to boost infrastructure investment with private capital while not adding pressure to already heavily indebted local governments.

Lian said they numbered nearly 10,000 this year so far, compared to around 900 in the previous year. “That could lead to a growing fix-asset investment and other construction-related readings,” Lian said.


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