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Factory activity in October surges to 18-month high
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China’s manufacturing activity accelerated to an 18-month high in October, indicating a sustained growth momentum in the world’s second-largest economy.
The official Purchasing Managers’ Index, a comprehensive gauge of operating conditions in China’s industrial companies, increased to 51.4 last month, the China Federation of Logistics and Purchasing said yesterday.
The index advanced from September’s 51.1 and August’s 51 — the fastest in 18 months.
Also, the HSBC Purchasing Managers’ Index, which gauges conditions in mostly private and export-oriented manufacturers, rose to a seven-month high of 50.9 in October.
A reading above 50 means expansion.
Last month’s figures marked the fourth consecutive index rebound.
“China’s manufacturing activities are seeing a steady upward trend,” said Zhang Liqun, an analyst appointed by the federation. “But the market is still cautious, as new orders, finished goods inventory and input prices all fell in the past month.”
The components showed that production picked up to 54.4 in October, up from 52.9 a month earlier.
However, new orders lost 0.3 points to 52.5, finished goods inventory decreased to 45.6 from 47.4, and input prices dropped 1.2 points to 53.3.
Zhou Hao, an economist at Australia and New Zealand Banking Group Ltd, said he was cautiously optimistic about the economic outlook.
“Compared to last year, the central government spending pattern seems to be proceeding at a slower pace this year,” Zhou said. “This may indicate that China’s growth profile will likely be more stable than last year as mirrored by the increase in the official PMI.”
Chang Jian, an economist at Barclays, said that slower growth of new orders pointed to softening demand, suggesting a slower growth in the coming quarters.
“China still faces fundamental challenges including industrial overcapacity, mounting local government debt, rising financial risks and the property bubble,” Chang said.
“They will constrain policy options. We still expect a neutral monetary policy stance with a tightening bias since August.”
HSBC PMI was the strongest in seven months and unchanged from its earlier flash reading. It was up from 50.2 in September.
Qu Hongbin, chief economist for China at HSBC Holdings Plc, said the final HSBC PMI reading rose due to the stronger momentum of manufacturing growth and translated into the first expansion of employment since March.
“This in turn should support private consumption growth in the coming months,” Qu said. “China is on track for a gradual growth recovery.”
China’s gross domestic product growth accelerated to 7.8 percent in the third quarter, up from an increase of 7.5 percent in the second quarter and indicating a steady growth pace.
The nation has carried out a string of supportive measures since May to balance short-term growth stability and medium-term risk mitigation. Supportive policies, such as tax reduction for small companies and more investment in railway which were dubbed as mini stimulus, have helped to invigorate the economy in the past few months.
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