China’s official manufacturing index rose to the highest level in seven months as new orders and export demand climbed, underscoring optimism the economy is recovering after a seven-quarter slowdown.
The Purchasing Managers’ Index (PMI) was at 50.6 last month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing.
That compares with the 50.8 median forecast in a Bloomberg News survey of 28 analysts and 50.2 the previous month. A reading above 50 indicates expansion.
Yesterday’s report reduces pressure on China’s new leadership to roll out more policies to support a growth rebound as they push ahead with overhauling state-owned enterprises and boosting consumption.
Confidence in China’s economy is at the highest in more than a year amid faith that Vice President Xi Jinping’s (習近平) administration will improve the investment climate, a Bloomberg investor poll this week showed.
“It’s especially encouraging that the rise in the PMI was mainly driven by new orders, which suggests output will be further boosted in coming months,” said Lu Ting (劉挺), chief Greater China economist at Bank of America Corp in Hong Kong. “Beijing will maintain the current policy stance, which is featured as marginally pro-growth without big-bang stimulus.”
Lu said he expects no cut in interest rates and at most one reduction in banks’ reserve requirement ratio before the end of the year.
He estimates economic growth will accelerate to 7.8 percent in the fourth quarter from a year earlier after a 7.4 percent pace in the previous three months, which was the slowest in three years.
The federation’s PMI is based on responses from purchasing managers at 820 companies in 31 industries.
Yesterday’s report showed a gauge of new orders expanded for a second month to its highest level since April after contracting for the previous five months, while the output sub-index was the highest in six months at 52.5.
A measure of export orders rose above 50 for the first time since May, with gains boosted by Christmas demand, the federation said in a separate statement.
“Economic growth will continue to maintain a moderate rebound,” Zhang Liqun (張立群), a senior researcher at the Development Research Center of the State Council, said in the federation’s release.
The data “indicate that destocking is now shifting to restocking, which means industrial production will continue to ramp up.”
Among respondents to Tuesday’s quarterly global poll of 862 investors, analysts and traders, 72 percent see the Chinese economy improving or remaining stable, up from 38 percent in September’s survey. Fifty-three percent said they are more optimistic about the effect of Xi’s policies on investors, up from 42 percent who were asked in September about President Hu Jintao (胡錦濤).
“Supportive policies on the domestic level have led to a gradual rebound of the manufacturing sector,” said Hu Yifan (胡一帆), chief economist at Haitong International Securities Co in Hong Kong, who previously worked at the World Bank. She estimates fourth-quarter growth will accelerate to 7.9 percent.
At the same time, Zhang from the Development Research Center said yesterday that the decline in a gauge of input prices in the PMI “shows the market’s confidence is not solid enough and the strength of the economic recovery is still weak.” The reading fell to 50.1 from 54.3 the previous month.
“We remain cautious about the sustainability of the recent improvement, worrying that much fragility persists,” Alistair Thornton and Ren Xianfang (任現芳), Beijing-based analysts with IHS Global Insight, said after the data release.
“Whilst activity is resuming, economic efficiency is declining,” they added, saying that in many parts of the economy, local state-owned enterprises are “riding to the rescue of debt-laden firms which, in a pure market economy, would be going bust.”