Growth in China's factory sector speeds up, driven by new orders at big firms, PMI shows

PUBLISHED : Friday, 01 November, 2013, 10:47am
UPDATED : Friday, 01 November, 2013, 4:58pm

China’s manufacturing sector grew at the fastest pace in 18 months in October, official data showed on Friday, adding to signs of a stabilisation in the world’s No 2 economy as the government readies a series of key economic reforms.

A private survey by HSBC/Markit released shortly afterwards also provided evidence of a rebound.

The strength shown in the official survey offered some relief on the growth outlook after a disappointing run of data a month earlier, including a below-forecast official Purchasing Managers Index (PMI) and a surprise drop in exports.

The official PMI for October stood at 51.4, up from September’s 51.1 and above a forecast of 51.2 in a Reuters poll of economists.

A reading above 50 indicates expansion, while a figure below that level indicates a contraction.

“This is in line with our relatively benign growth outlook,” Louis Kuijs, an economist at RBS, said in a note.

“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.”

The foundation for a recovery is not yet solid
Zhang Liqun, Development Research Centre

A breakdown of the sub-indexes showed that new orders in large industries reached 53.8, while for small industries the number was just 48.8, suggesting that the trend towards stabilisation has still largely only been felt by larger firms.

“The PMI data for October shows a continued increase, indicating a preliminary stabilisation in the economy,” Zhang Liqun, an economist at the Development Research Centre, a cabinet think tank, said in a statement released with the PMI.

“The foundation for a recovery is not yet solid.”

Meanwhile, the final HSBC/Markit PMI came in at 50.9, up from 50.2 in September and unchanged from a preliminary flash estimate released last week.

The official PMI is weighted more towards bigger and state-owned enterprises and tends to produce more favourable results than the private survey, which focuses more on smaller and private-sector firms

The HSBC survey showed a surprise jump in new export orders to 51.3, up from the initial reading of 50.8. Many of the surveyed firms reported stronger demand from the United States in particular.

Domestic new orders also grew at their fastest pace since March, though they were slightly lower than the number reported in the flash estimate.

Signs of improvement will help the government push its reform agenda at the upcoming third plenary meeting of the Communist Party from November 9-12.

In the first nine months of the year, the economy grew 7.7 per cent from a year earlier, putting it on track to achieve Beijing’s this year target of 7.5 per cent, although that would still be the weakest growth rate in 23 years.