China manufacturing surges on local spending


BEIJING: A surge in domestic investment spurred factory activity in China and offset anemic exports, pushing a key gauge of the country’s manufacturing sector to a one-year high.

Brokerage CLSA’s China Purchasing Managers’ Index (PMI) rose in July to 52.8 from 51.8 in June, the fourth month in a row that the index, designed to provide a timely snapshot of manufacturing conditions, has been in expansionary territory above the watershed mark of 50.

The survey pointed to growing price pressures alongside the accelerated recovery, shedding light on why the Chinese central bank has begun to tweak monetary policy to keep credit growth from spiralling out of control.

But persistently sluggish global demand also illustrates its dilemma, with Beijing unwilling to tighten policy substantially until the job-rich export sector gets back on its feet.

The CLSA findings dovetailed with those of China’s official PMI, released on Saturday, which rose for a fifth straight month in July despite a usual summer lull in the economy.

“Manufacturing activity continues to accelerate and, importantly, orders growth is being driven by the domestic economy,” said Eric Fishwick, head of economic research at CLSA.

“This is positive as Chinese exports are now underperforming those of the north Asian newly-industrialised economies, supporting the panel’s description of export demand as ‘lacklustre’,” he said.

Output growth and order books both hit 14-month highs in July, providing indications that the flow of new work was improving and giving manufacturers reason to expect sustained recovery momentum. Those highs contrasted with sluggish demand abroad, as export orders grew at a slower pace than in the previous month.

The seasonally-adjusted PMI index stood below the breakeven mark of 50 between August 2008 and March this year after the global financial crisis decimated exports and monetary tightening weighed on Chinese industry.

Beijing responded with a massive four trillion yuan (US$585bil) stimulus programme and ultra-loose monetary policy, prodding its banks to unleash a flood of lending.

Monday’s report showed that this pump-priming has breathed life back into the Chinese manufacturing sector and has been all the more vital with exports still flat. The PMI has risen by over 10 index points since the start of the year.

Another sign of the upward trajectory came in the first increase in prices charged by companies in 11 months, as stronger demand boosted their pricing power, CLSA said.

The sub-index for output prices jumped to 54.9 in July from 49.0 in June, illustrating why the Chinese central bank said last week that consumer prices could start rising again in the fourth quarter after being in mild deflation since February.

The focus for now, though, is squarely on the consolidation of the recovery in China’s manufacturing sector. Although the official PMI only inched up to 53.3 in July from 53.2 in June, several economists said the performance was impressive.

“The index held steady even though activity typically slows down somewhat in the middle of summer,” Ken Peng, an economist with Citigroup in Beijing, said in a research note. “The PMI, at these levels, points to further pick up in industrial production.”

It was the first time since 2005 that the official PMI had registered an increase from June to July, according to Merrill Lynch, a sign of the strength of the manufacturing revival.

A breakdown of CLSA’s PMI highlighted some of the more bullish trends in China, the world’s third-largest economy.

New order growth was faster than the historical average of the series. Stronger incoming orders also pushed work backlogs to a 13-month high, with 15% of firms reporting an expansion of unfinished business since June.

Latest business news from AP-Wire

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights
   

Next In Business News

Evergrande's US$2.6b unit stake sale fails as Chinese officials seek to calm nerves
Stocks gain, Dow touches record; oil rises on EIA data
Tesla beats 3Q revenue forecasts but supply-chain problems hit plants
KIP REIT plans to diversify asset portfolios
George Kent to focus on regional railway sector
Supportline : Greatech, MI Technovation, Frontken
Mah Sing completes RM300mil Sukuk issuance
MITEC reopens facilities as business events resume
Tenaga completes purchase of Blyth from EDF Renewables
Vegetable oil production set to hit 4-year high leading to fall in prices

Others Also Read


Vouchers