Manufacturing News

Industry growth brightens outlook

China's manufacturing picked up for the third straight month in November, official data showed on Saturday, pointing to further recovery of the world's second largest economy.

The purchasing managers' index rose to 50.6 in November from 50.2 in October, reaching a seven-month high, according to China Federation of Logistics and Purchasing.

The PMI rebounded to 49.8 percent in September, ending four straight months of decline. A reading above 50 indicates an economic expansion.

"Though the November PMI is a bit lower than the market expectation of 50.8, it remained above 50 and has risen for three months in a row, demonstrating that the country's real economy and financial market is improving," said Zhou Hao, an economist at ANZ Banking Group Ltd.

Readings for sub-indices also indicated an expansion. The sub-index for new orders climbed 0.8 percent from October to 51.2 last month. The export order sub-index for November stood at 50.2, up 0.9 percent from the previous month, CFLP statistics show.

For Zhang Liqun, an analyst with the Development Research Center of the State Council, increases of new orders and improvements in some PMI sub-indices mean companies have finished cutting inventories, which points to further expansion in coming months.

HSBC China's flash PMI, which prefers samples from small and medium-sized enterprises, bounced back into expansion territory for the first time in 13 months to stand at 50.4 in November.

China's economic recovery has been underway since September thanks to a series of macroeconomic policies and recovering global market demand. A number of indicators in the past two months have boosted confidence that the economy is improving.

Exports increased 11.7 percent year-on-year in October, 1.7 percentage points higher than September.

Industrial added-value output growth accelerated to 9.6 percent year-on-year in October, from 9.2 percent in September and 8.6 percent in August. Retail sales of consumer goods rose 14.5 percent from a year ago in October, compared with 14.1 percent in September and 13.2 percent in August.

"The recovery in industrial activity appears to be gaining traction, supported by policy easing and stabilization in the housing market," said Zhu Haibin, chief China economist and head of Greater China economic research at J.P. Morgan. "External demand has also improved in the near term."

Standard & Poor's Ratings Services on Friday affirmed the AA- long-term and A-1+ short-term sovereign credit rating of the People's Republic of China, with the outlook being stable.

The ratings reflect the country's strong economic growth potential, robust external position, and the government's relatively healthy fiscal position, S&P said.

"We expect no major change in policy directions in China in the wake of the recent top leadership changes," said S&P credit analyst Kim Eng Tan. "Efforts to deepen structural and fiscal reforms are likely to continue. We expect the Chinese economy to continue its strong growth while the country maintains its large external creditor position in the next three to five years."

But some economists are not so optimistic, considering the global economic recession may continue next year.

Royal Bank of Scotland expects China's GDP growth to be around 7.6 percent in 2012 and, with a modest recovery, around 8 percent in 2013, the bank's China economist said.

This forecast is below the consensus opinion. A number of economists believe the country's GDP growth could still reach 8 percent this year.

"We think export growth will face some headwinds from the subdued global growth outlook for 2013, especially for the European Union, China's largest export market," said Louis Kuijs, China economist with the Royal Bank of Scotland PLC.

"Also, we expect consumption growth to moderate in the coming quarters because we expect wage growth to decelerate, given the weak profit situation and modest growth outlook," Kuijs added.

However, the inventory reductions that have been a drag on growth in 2012 should be less restraining next year, the RBS research showed.

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