International | Sep 01 2009
By Chris Shaw
Much has been written in recent weeks about whether or not the Chinese economy can sustain its growth rate in comnig months as the impact of the fiscal stimulus package fades, so today’s Purchasing Manufacturer’s Index (PMI) data were seen as key indicators of the state of the economy.
Head of economic research at CLSA, Erick Fishwick notes the official China PMI for August was 54.0, an improvement on the 53.3 recorded in July and the sixth month in a row it has been in expansion territory, which is regarded as a reading of more than 50.0.
The outcome equals the previous highest reading for the measure recorded back in August of 2007 and, as Fishwick points out, means Chinese policymakers have succeeded in accelerating the economy from below trend growth in the December quarter of 2008 to above trend growth in a very short time.
The survey showed the new orders index rose to 56.3 from 55.5 in July and the output index increased to 57.9 from 57.3, while the employment index rose slightly and the new export orders index remained in positive territory.
HSBC’s (formerly CLSA) China PMI measure was similarly strong, hitting a 16-month high of 55.1 in August, well above the 52.8 reading recorded in July on the back of increases in both output and new orders. The data showed strong demand both domestically but also from abroad, which implies external demand is at worst stabilising or at best showing signs of a recovery.
HSBC chief China economist Qu Hongbin suggests the strong result is likely to increase confidence in a recovery, especially as he expects the manufacturing sector to improve further in coming months. Inflation shouldn’t be a problem in such an environment as he notes manufacturers can only pass on a fraction of their higher input costs to customers at present.
In Fishwick’s view the data suggest economic growth will remain very resilient to attempts by policymakers to slow loan growth, especially as there is currently little evidence to suggest the current pace of fixed asset investment growth is problematic at existing levels.
CLSA’s China macro strategist Andy Rothman agrees, taking the view while Beijing is likely to withdraw some of the stimulus that is no longer required, there are unlikely to be any tightening measures introduced as there appears little intention to try and slow the rate of growth of the economy.
In the view of Westpac’s economics team the near-term outlook for Chinese manufacturing remains quite strong, though they believe the momentum of the data will be fading in coming months, even though around the end of the year the comparable figures will be easier to beat given the weakness in the economy late last year.