Strong manufacturing data eases China fears

A Chinese manufacturing gauge rose more than estimated to an 18-month high in October as output strengthened, adding to evidence that the nation’s economic recovery is sustaining momentum.

The Purchasing Managers’ Index was at 51.4, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. That compares with 51.1 in September and the 51.2 median estimate in a survey of 31 analysts.

Stronger manufacturing is underpinning China’s recovery, giving the government room to implement reforms the World Bank has said are critical for the nation to become a high-income economy. Top Communist Party officials will meet in Beijing next week to discuss how to cut red tape, push forward tax and financial changes, and spur a shift toward a consumption-driven economy.

“With global demand momentum likely to pick up gradually and domestic demand growth remaining solid, we expect GDP growth to comfortably exceed the government’s bottom line in the coming quarters,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group in Hong Kong, referring to gross domestic product. “Such an outlook allows for a firmer monetary stance, which we expect to materialize more clearly in the coming month.”

The PMI was above the estimates of 24 of 31 economists in the survey. Levels above 50 signal expansion in manufacturing while those below point to a contraction. The output index was also the highest in 18 months. A gauge of export orders was above 50 for the third month, while a new orders index fell to 52.5 from 52.8, which was the highest since April 2012.

Yesterday’s report is in line with the strengthening indicated in the preliminary reading of a separate manufacturing gauge released by HSBC Holdings and Markit Economics on Oct. 24. The federation increased the number of companies in its manufacturing survey to 3,000 from 820. The HSBC survey is based on responses from purchasing managers at more than 420 businesses, and is weighted toward smaller private companies.

China’s GDP will increase 7.6 percent this year, according to the median estimate of 52 economists surveyed last month. That’s the same pace as 1999, which was the weakest expansion since 1990. Growth may slide to 7.4 percent in 2014, according to the median projection of 47 analysts.

Consumer-focused companies are benefiting from the upturn. German automaker Volkswagen AG this week posted third-quarter operating profit that beat estimates, with nine-month deliveries in China rising 18 percent.

China’s top leadership, led by president and Communist Party chief Xi Jinping, will hold a four-day meeting, known as the Third Plenum, starting Nov. 9, to discuss and set a blueprint for social and economic reforms to meet the party’s goal of doubling per capita income in the decade through 2020.

In a report last year titled China 2030, the World Bank and Development Research Center under the State Council warned that the nation’s growth model isn’t sustainable and put forward policy changes that would help avoid the middle-income trap, a situation where a nation’s productivity and income growth stalls as it loses competitiveness and fails to upgrade its economy.

Bloomberg