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PRC production picks up the pace

China’s manufacturing expanded at the fastest pace in 18 months and a government researcher said economic growth would accelerate this quarter.

The purchasing managers’ index (PMI) rose to a seasonally adjusted 55.2 last month from 54.3 in September, the Federation of Logistics and Purchasing (中國物流與採購聯合會) said yesterday in an e-mailed statement in Beijing. An index of export orders climbed to 54.5 from 53.3.

Chinese Premier Wen Jiabao’s (溫家寶) US$586 billion stimulus plan and unprecedented growth in new loans are sustaining China’s rebound amid signs that exports may start to recover as the global slump eases.

The world’s third-biggest economy may expand at a 9.5 percent annual pace this quarter, Zhang Liqun (張立群) of the State Council Development and Research Center, said in the statement.

“China’s recovery has been impressive, but has been heavily reliant on government-directed investment,” said Brian Jackson, Hong Kong-based strategist for emerging markets at Royal Bank of Canada.

“External demand will provide an additional source of support for growth in the months ahead,” he said, adding that the government might “start tightening policy from early 2010.”

The latest PMI number was higher than the median estimate of 54.7 in a Bloomberg News survey of 10 economists.

A reading above 50 indicates an expansion. Yesterday’s figure compares with a record-low 38.8 in November last year, when recessions in the US, Europe and Japan sent export orders plunging.

China’s Cabinet pledged on Oct. 21 to continue monetary and fiscal stimulus even after growth exceeded officials’ expectations for the first nine months of the year.

Chinese Commerce Minister Chen Deming (陳德銘) said on Saturday that the global economy may “plunge” if nations withdraw support measures too quickly.

A jump in the import index to 52.8 from 50.7 “shows an acceleration of domestic demand,” Zhang said.

An output index rose to 59.3 last month from 58 in September and a measure of new orders climbed to 58.5 from 56.8.

An index of employment dropped to 52.4 from 53.2.

Surging auto sales, driven by tax cuts and subsidies, are boosting manufacturing.

China will sustain its economic rebound this quarter and growth is likely to top the government’s 8 percent target for this year, the central bank said on Friday.

Policy makers need to “manage inflation expectations,” curb excess capacity and encourage sustainable lending growth, the central bank said in its report on the third-quarter economy.
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