China’s economy is finally regaining some traction, official and private sector factory surveys showed on Thursday, although they pointed to a sluggish recovery with the latter recording its 12th straight month of slowing growth.
The surveys add to other signs of economic revival in October after domestic credit curbs and weak demand from overseas markets pushed down third-quarter growth to its lowest rate since the depths of the global financial crisis.
The National Bureau of Statistics reported the official October Purchasing Managers’ Index (PMI) rose to 50.2 from 49.8 in September, just below a 50.3 forecast by a Reuters poll last week.
It marked the first reading above 50 – which divides a pick up in activity from a slowdown – since July and backed the view that growth could be picking up in the world’s second-largest economy.
“The continued rebounding of sub-indexes including new orders, export orders and quantity of purchases, indicates companies’ de-stocking process has basically ended,” Zhang Liqun, a researcher with the Development Research Centre of the State Council, wrote in a statement accompanying the index.
“We expect China’s economic growth will end its decline and rebound slightly in the future.”
The HSBC Purchasing Managers’ Index rose to 49.5 in October from 47.9 in September. The reading was the highest since February, and deviated more than usual from the October flash, or preliminary, reading of 49.1 released last week.
“October’s final PMI rose to an eight-month high, implying that China’s industrial activity continues to bottom out following a modest pick-up last month,” wrote HSBC economist Hongbin Qu in a statement accompanying the survey.
“This is mainly driven by the increase of new orders, thanks to the filtering-through of the earlier easing measures, while exports outlook remains challenging.”
The new orders subindex rose to 51.2 – its first time in expansionary territory since October of last year.
Recent data has shown signs that the economy stabilized in September and the factory surveys are one of the first indications it began perking up in October.
“The return of the PMI above 50 suggests economic momentum has indeed picked up. It indicates the effect of policy easing may have been stronger than the consensus expected,” Zhiwei Zhang of Nomura said in a comment e-mailed to Reuters.
“We believe macro data will continue to surprise on the upside in coming months, as the government continues to ease policy through the period of leadership transition.”
Economic activity in the fourth quarter is widely expected to pick up after annual growth slowed to 7.4 per cent in the third quarter. That would put it on track to beat the government target of full-year growth of 7.5 or above.
Manufacturers reported higher input costs – particularly for raw materials – but for the first time in a year were able to pass those on by raising prices, Markit Economics, which compiles the HSBC survey, wrote.
The private HSBC PMI captures views mainly of smaller, export-oriented firms in China’s vast factory sector.
The employment subindex rose to its highest level in eight months, but it remained below 50. China has so far avoided the massive job losses or urban unrest feared by the ruling Communist Party, which has seen a year of political infighting as factions ready for a once-in-a-decade leadership transfer in November.
An output subindex in the HSBC PMI also rose after a September dip, and average lead-times – a proxy for how busy factories are – lengthened.
“Survey respondents that experienced longer delivery times attributed deteriorated supplier performance to a rise in the number of orders placed to vendors,” Markit wrote.
On the export front “weak demand from Europe and the U.S. was reported,” it said.
After monetary loosening moves earlier in the year, credit supply in China has increased while inflation has stayed low, allowing planners to relax and hold off on further measures. Some analysts expect additional moves after the 18th Party Congress in November, to present the new leadership with an economic boost.
The central bank injected a record amount of cash this week via open market operations, signalling a commitment to keep money market conditions relatively loose. That should enable banks to lend more to support the economy.
Planners have so far defied expectations of further cuts in interest rates or required bank reserves, after a round of moves this summer.
Some analysts have now scaled back on those expectations, with Ting Lu of Merrill Lynch saying on Thursday he still expects one more reserve cut but no more interest rate cuts.
The record injection this week is roughly equivalent to the additional liquidity provided by a bank reserve cut, but leaves the central bank with more flexibility to respond to future developments.
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