China factory factory rises to 18-month high

China factory factory rises to 18-month high

BEIJING - Reuters
China factory factory rises to 18-month high

A worker operates a machine to cut a pipeline at a factory in Qingdao, Shandong province. China’s factory growth held at an 18-month high in November. REUTERS photo

China’s factory growth held at an 18-month high in November on firm domestic and foreign demand, defying expectations the economy faces a modest slowdown as 2013 draws to a close.

The official Purchasing Managers’ Index (PMI) stood at 51.4 in November, the National Bureau of Statistics said, unchanged from October and ahead of market expectations for a reading of 51.1.

Investors had expected the PMI, one of the earliest pieces of Chinese data released each month, to show China’s economy decelerated in the fourth quarter on slacker credit growth, fragile global demand, and slower restocking of inventories by firms.

“Growth momentum held up in November,” said Louis Kuijs, an economist at RBS in Hong Kong. “The export order data suggests that global demand - key to the outlook for China’s manufacturing - improved a bit.”

A sub-index for export orders nudged higher to 50.6 in November from 50.4 in October, hovering above the 50-point threshold separating growth from contraction.

Experts will welcome the unexpected PMI strength as a sign that China can press on with sprawling plans outlined last month to cut back central economic planning without fear of endangering growth. After three decades of double-digit growth, analysts say China’s economy has reached a turning point where traditional growth drivers of heavy investment and brisk export sales must make way for a more sustainable expansion in consumption.

In the near-term, China’s attempt to remake its economy should foster market confidence and perhaps even offset investor jitters over tighter monetary policy, said Kuijs. “After a mild slowdown in the fourth quarter of 2013, we expect China to benefit from improved global growth late this year and in 2014,” he said.

Cautious companies

Yesterday’s PMI is the latest of a series of data confounding bets that China’s growth engine is losing steam. Factory production, retail sales and investment had all displayed encouraging growth in October, suggesting the world’s second-largest economy is stabilizing. Still, analysts cautioned against undue optimism.

The PMI showed new orders, a measure of foreign and domestic demand, edged down to 52.3 from 52.5 in October. The production and business activity expectation sub-index also slid to 54.9 from October’s 57.5. Liu Li Gang and Zhou Hao from ANZ Bank said China’s tightening credit conditions had lifted borrowing costs and would probably deter firms from investing heavily or expanding quickly.

The PMI survey also showed stocks of purchases fell to 47.8 in November, a low not seen since July. “This indicates that the producers are not rushing to hoard raw materials due to lack of final demand,” Liu and Zhou said.

Worried about brisk credit growth, stubbornly strong record house prices and quickening inflation, which hit an eight-month high in October, China’s leaders have signaled lately that monetary policy may be tightened slightly to cool prices. But analysts do not expect the mild tightening to cause a sharp fall-off in growth. For the year, economists believe growth may hit 7.6 percent, impressive by world standards.