Bloomberg reported that China manufacturing expanded at the fastest pace in 16 months in August, driven by record lending in the H1 of the year.
According to the report, the Federation of Logistics and Purchasing said the Purchasing Managers Index rose to a seasonally adjusted 54 from 53.3 in July. A PMI released by HSBC Holdings Plc also climbed.
Gains in output orders and jobs added to evidence that Premier Mr Wen Jiabao can meet his 8% growth target for the year as a stimulus package counters falling exports. The Shanghai Composite Index plunged into a bear market recently on concern that the world’s third biggest economy will slump as banks rein in credit growth to avert asset bubbles and bad loans.
Mr Brian Jackson a strategist at Royal Bank of Canada in Hong Kong said “China’s equity market has taken a battering in the past few weeks, but the economic data suggests that the recovery remains on track. Beijing still faces the difficult task of managing liquidity conditions to avoid a bubble or a bust.”
1. Maintaining Momentum
Mr Zhang Liqun a researcher at the State Council Development and Research Center said the government backed PMI shows that China economic rebound will maintain momentum. He said that there were uncertainties in the economy and a mix of positive and negative factors.
Economic growth accelerated to 7.9% in the Q2 from a year earlier on the nation USD 585 billion stimulus package and more than USD 1 trillion of new loans in the H1. The 6.1% expansion in the first three months of the year was the weakest in almost a decade.
Eighteen industries, including petrochemicals, beverages, metal processing and equipment manufacturing reported expansions in the PMI data. Only textiles and pharmaceuticals contracted.
The output index rose to 57.9 from 57.3 in July. The measure of new orders climbed to 56.3 from 55.5. An export order index was unchanged at 52.1. An employment index gained to 51.4 from 50.8. Readings above 50 indicate expansions.
2. Boost for Consumption
Mr Sun Mingchun chief China economist at Nomura Holdings Inc in Hong Kong said “This clearly shows that we are in a broad based economic recovery. The gain in jobs was very encouraging, as it shows that firms are confident enough to increase hiring which will also help boost consumption for the rest of the year.”
According to Bloomberg News survey of 21 economists, economic growth will continue to quicken in the third and Q4 reaching 8.3%t for the year.
Subsidies for purchases from cars to home appliances are aiding manufacturers by stoking domestic demand as the global recession cuts exports. Shenzhen based BYD Co a Warren Buffett backed maker of cars and rechargeable batteries almost doubled H1 profit as stimulus measures boosted sales.
The State Council, China cabinet said last month that it saw signs of a recovery in manufacturing and also announced plans to curb overcapacity in the steel and cement industries.
(Sourced from Bloomberg)
