International | Sep 29 2010
By Rudi Filapek-Vandyck
In line with seasonal trends, and with market expectations, the unofficial, seasonally adjusted China Purchasing Managers’ Index compiled by Market Economics and released by HSBC has shown a slight improvement in September. However, this month's survey also seems to signal an acceleration in price inflation (see further below).
HSBC economists are talking about a “moderate improvement in Chinese manufacturing sector operating conditions that was the strongest in five months”. The index has now climbed over three points since posting below the neutral 50.0 threshold in July, suggesting growth momentum in the sector continued to build during the latest survey period.
Manufacturing production in China rose further during the period. HSBC economists point out the rate of expansion was moderate, but still slightly faster than the long-run series average.
Where a rise in output was signalled, panellists primarily attributed growth to “greater inflows of new business”, which, HSBC economists note, rose for the second month in a row. The rate of “new business growth” was solid, but contrasted with strong rates seen throughout Q1 2010.
Anecdotal evidence suggested that the latest expansion was supported by stronger market demand. New export business rose in September, ending a three-month period of decline. However, the rate of growth was only marginal, the economists add.
Staff numbers continued to rise in September, although the rate of job creation was only slight. Where a rise in employment was signalled, panellists attributed growth to increased new business wins. This was partly offset by reports of employee resignations and retirements.
Average input costs rose substantially in September, with the rate of inflation accelerating steeply since the preceding month. Respondents frequently cited higher raw material prices as the main driver of inflation, with steel mentioned in particular. As a result, manufacturers raised their output prices on average in an attempt to maintain operating margins. HSBC reports the rate of output price inflation was "sharp", and the fastest in eight months.
Purchasing activity rose solidly in September, largely reflective of further gains in new business and a subsequent rise in production requirements. The latest increase, which extends the current period of growth to three months, was the fastest since April, note the economists. Subsequently, average vendor performance deteriorated to the greatest extent in five months, with panellists citing supply shortages at vendors as having negatively impacted upon delivery schedules.
HSBC believes continued investment in ongoing infrastructure projects plus resilient consumption will help the Chinese economy to grow by around 9% in the rest of the year as well as in 2011.
