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October 1, 2009

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Home » Business » Economy

Survey points to mild recovery

AN HSBC index that anticipates future Chinese manufacturing and employment pointed to expansion for a sixth month in September, with the job outlook at its highest level in 25 months.

The HSBC China Manufacturing Purchasing Managers Index was little changed at 55 last month on a seasonally adjusted basis, compared with 55.1 in August. A reading above 50 indicates expansion.

"Slower expansion in the index shows that the recovery remains mild, and its foothold still needs more time to solidify," said Li Maoyu, an analyst at Changjiang Securities Co.

The output portion of the index fell to 57.6 in September from 58.4 a month earlier, the new orders index dropped to 58 from 59.3, and the export order index dropped to 54.4 from 54.9, HSBC Holdings plc said yesterday.

The employment portion of the index rose to 53, primarily in response to rising sales volumes and graduate recruitment programs, the bank said.

"New business growth remained substantial, signaling that the recovery in demand from both domestic and external sources is well on track," said Qu Hongbin, chief China economist at HSBC. "Rising employment in the manufacturing sector is even more encouraging because it suggests that China's infrastructure-led recovery is starting to spread to the consumer sector."

The real problem in the manufacturing sector, however, is growing production surpluses and duplication of efforts in many construction projects, according to a statement from the Chinese government.

The State Council has told local governments to monitor overcapacity in industries such as steel, cement, wind power equipment and polysilicon.

"If we don't properly deal with the problems, they will cause vicious competition and lead to factory closures, unemployment and bad bank loans, which pose serious threats to China's economic growth," the State Council said yesterday.

It has demanded local authorities tighten oversight and raise the threshold for new companies entering those industries.

Another threat comes from inflation. HSBC's output prices index stood at 52.5 in September, indicating expansion.

"Average cost burdens faced by companies operating in the Chinese manufacturing sector increased at a substantial rate last month," the bank said. "Rising prices for corn, iron ore, petroleum and steel are all reported to have fed higher overall input costs."


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