Mainland factories maintain record pace of expansion
The mainland's manufacturing activity held at the fastest rate in 18 months in November and although it was slower than anticipated, analysts predict the economic recovery will continue in the coming months.
The official Purchasing Managers' Index for last month came in at 55.2, unchanged from October, said the China Federation of Logistics and Purchasing in Beijing.
This was lower than the 55.7 predicted in a Bloomberg survey of 17 economists, but it still represented the ninth consecutive month where the index has been above the threshold of 50 that indicates expansion.
Another PMI index released by HSBC showed the mainland's manufacturing expanded last month at the fastest pace since April 2004, rising to a seasonally adjusted 55.7.
Goldman Sachs economists said the November figures could have been negatively affected by the recent snowstorm in northern China, but added the 55.2 reading was a historically strong number.
'We maintain our view that China's overall economic environment is favourable as the slower pace of credit expansion in recent months dampened inflationary pressures without derailing the recovery process,' wrote Yu Song and Helen Qiao Hong in a research note.
The output component of the index edged up to 59.4 from 59.3 in October, which Nomura International said could mean industrial output growth jumped to 17.5 per cent last month from 16.1 per cent in October.
Nomura economist Sun Mingchun said since industrial output is the best indicator of the mainland's gross domestic product growth, the PMI figure could suggest economic growth is on track to reach his forecast 11 per cent in the fourth quarter.
Industrial output accounts for 40 per cent of the mainland's economic output.
'The November PMI data suggest that the V-shaped recovery in the manufacturing sector continues,' he wrote in a note. 'We reiterate our expectation of a V-shaped recovery in GDP growth [this year], with full-year growth averaging 8.5 per cent.'
Mainland GDP grew 7.7 per cent year on year in the first nine months, with third-quarter growth at 8.9 per cent from 7.1 per cent in the first half.
The upbeat output component of the PMI was partly dampened by slower growth in new orders, particularly those for exports whose index slid to 53.6 from 54.5 in October.
The PMI's raw material component rose to 51.4 from 49 in October, crossing the 50 expansion threshold for the first time in 19 months.
Sun said it reflected not only a continued rise in new orders, which stood at 58.4 last month, but also a faster jump in input prices - to 63.4 from 56.9 in October - which is usually a sign of economic overheating.
'This supports our view that we may see shortages in some upstream sectors in [next year's second quarter] when the investment boom peaks,' he wrote.
Goldman economists noted petroleum and power price rises and higher steel prices had contributed to higher input prices.
The PMI index's finished goods inventory component remained below 50 at 45.4 last month. Combined with the jump in the raw material component, it is an indication that manufacturers are eager to position for higher commodity prices even though they are uncertain of the strength of end-user demand, Citi economist Ken Peng wrote in a note.
