China’s manufacturing activity expanded at its strongest pace in seven months this month, British banking giant HSBC said yesterday, adding to evidence the world’s second-largest economy is recovering.
HSBC’s preliminary purchasing managers’ index (PMI) for this month hit 50.9, a significant improvement from last month’s 50.2 and the highest since 51.6 in March.
The index tracks manufacturing activity in China’s factories and workshops and is a closely watched gauge of the health of the economy. A reading above 50 indicates growth, while anything below signals contraction.
Photo: Reuters
The strong performance for this month came on the back of “broad-based modest improvements” in the Chinese economy, Qu Hongbin (屈宏斌), a HSBC economist in Hong Kong, said in a statement accompanying the data.
“This momentum is likely to continue in the coming months, creating favorable conditions for speeding up structural reforms,” he said.
The latest PMI reading may help alleviate market concerns over the sustainability of China’s recovery.
Growth in July to September hit 7.8 percent year-on-year, snapping two quarters of slowing expansion, official data released last week show.
The jump was mainly a result of government stimulus since late June that included increased rail and urban fixed-asset investment, tax cuts and looser monetary policy, analysts said.
However, the nation’s rising inflation and excess market liquidity are limiting room for further monetary loosening, while skyrocketing local government debt and slowing fiscal revenue growth are restricting the scope for more tax incentives, they said.
Bank of America Merrill Lynch economists said that the preliminary PMI figure for this month was “better than expected” and positive given the fragile market sentiment.
However, they maintained that the recovery may lose some momentum in the fourth quarter, with the government’s pro-growth policy stance likely to turn neutral.
“Excessive fear on financial conditions and policy tightening is definitely not justified,” they wrote in a research note.
HSBC is scheduled to announce its final PMI figure for this month on Nov. 1.
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