International | Nov 02 2009
By Rudi Filapek-Vandyck
Employment in the Chinese manufacturing sector rose in October at the sharpest rate since April 2004, while export orders hit a 28-month high and pre-production inventories rose for the first time since July 2007. To complete this picture, one also has to take into account that total output and orders slipped from September’s heights but they remained at elevated levels.
Investors would find it hard to find any relationship between these data, taken from HSBC’s October survey on Chinese manufacturers, and the relentless sell-downs currently haunting global equity markets, including commodities and shares of commodity producers.
HSBC released the October results of its monthly survey, previously known as the CLSA purchasing managers index, on Monday after a similar government backed index was released over the weekend. Both survey results are unanimous in their readings: China’s manufacturing expanded at the fastest pace in eighteen months in October.
The results have prompted responses from economists that China’s growth is likely to accelerate into the final quarter of the calendar year, as already indicated by Chinese government officials in October.
The HSBC index rose to a seasonally adjusted 55.4 from 55 in September. A reading above 50 indicates an expansion.
A government-backed purchasing managers’ index, released on Sunday, equally showed the quickest growth since April 2008. The China Federation of Logistics and Purchasing said on Sunday its own PMI rose to 55.2 in October, up from 54.3 in the previous month.
It was the eighth consecutive month the “official” PMI has stood above 50. The last reading below 50 was in Februray when the PMI reading was 49. The index sank to a record low of 38.8 last November when the economy was slumping due to a collapse in external demand and a downturn in the domestic property market.
For the HSBC PMI, October marked the seventh consecutive month of a reading above 50.0. Prior to April, the HSBC PMI had remained below 50 for eight months.
Hongbin Qu, chief economist for China at HSBC was quoted as saying: “We believe the ongoing strong recovery in the manufacturing sector should gain further momentum in the coming months, hence underpinning strong economic growth in the fourth quarter”.
The HSBC China Manufacturing PMI is compiled with UK-based research firm Markit Group Ltd. Markit, which surveys more than 400 firms, highlighted the following findings from the October poll:
– Output growth slipped to a three-month low but was still “substantial.”
– New orders also slipped to a three-month low but remained at a level indicative of a marked expansion. Almost 27% of companies reported greater inflows of new business compared with September.
– Around 19% of respondents reported an increase in export orders, with North America mentioned in particular as a source of demand.
– Manufacturers saw continued difficulties in dealing with existing workloads. Backlogs of work were much greater than the series average, reflecting growing capacity pressures as new business flows in.
– Stocks of finished goods increased for only the second time in 11 months, widely attributed to rising production volumes.
– Manufacturing employment rose for the fifth month in a row, and at a record rate for the PMI series.
– The rate of output price inflation continued to ease from August’s peak as increased competition prevented firms from charging more.
– Input price inflation also eased to below the series average, although some panellists said increased global demand for commodities was pushing their costs up.
– The time taken by vendors to deliver inputs lengthened modestly, reflecting a shortage of supplies as demand strengthened.
– Input buying rose to its second-highest level since April 2008 as factories geared up for increased production volumes. Some panellists said stock-building was also a factor.
– Pre-production inventories rose for the first time since July 2007, with more than 13% of respondents reporting an increase from September.
Online broadcaster CCTV.com released the following economist responses post the initial PMI-release:
Zhang Liqun, a researcher with the Development Research Center, a think-tank under the State Council, said the report indicates the economy is now firmly on the road to recovery. Gains in the sub-indexes for imports and new export orders reflect growing demand both at home and abroad.
Jing Ulrich, chairman of China equities and commodities at JP Morgan, agreed the survey suggests sustained industrial expansion. She noted “While public investment may moderate in the months ahead, private real estate investment, consumer spending and export demand should drive growth …”