Chinese factories bouncing back, positive PMI shows

PUBLISHED : Friday, 02 November, 2012, 12:00am
UPDATED : Friday, 02 November, 2012, 7:46am

The mainland's manufacturing sector has shown signs of recovery, helped by new orders, raising hopes of a rebound in economic growth in the fourth quarter.

Beijing is likely to keep policies in place to boost domestic demand and combat external headwinds, though economists believe the likelihood of stronger stimulus measures has fallen.

Manufacturing businesses expanded in October after two months of contraction, according to the purchasing managers index issued yesterday by the National Bureau of Statistics, which hit 50.2, up from 49.8.

A figure above 50 indicates expansion, while below 50 indicates contraction.

The HSBC purchasing managers index for China rose to an eight-month high of 49.5 from 47.9 in September, indicating only "marginal" contraction. The final reading came in better than the preliminary result of 49.1.

Investor confidence has improved, pushing the Shanghai stock market to gain 1.72 per cent to close yesterday at 2104.43.

Bank of America Merrill Lynch now expects no interest rate cut and at most one more cut in banks' reserve ratios this year. "Though we don't expect a big stimulus, policy easing/stimulus is more likely to continue as growth recovery is not solid yet."

Economic expansion sank to a 14-quarter low of 7.4 per cent in the third quarter. But economists widely believe the decline in growth has bottomed out.

HSBC said the government's spending may quicken in the fourth quarter, supporting industrial production growth of around 10 per cent after a rise of 9.2 per cent in September.

Manufacturers may begin to restock soon, as the new orders index rose above 50 for the first time since May, to 50.4, while a gauge of output rose to 52.1, the official data showed.