China factory activity expands with official PMI hitting 18-month high

Purchasing Managers Index hits 18-month high last month in sign of economic expansion

PUBLISHED : Saturday, 02 November, 2013, 4:58am
UPDATED : Saturday, 02 November, 2013, 5:07am

The mainland's manufacturing sector grew at the fastest pace in 18 months last month, official data showed yesterday, adding to signs of a stabilisation in the world's No 2 economy as the Communist Party readies a series of key economic reforms.

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

The official survey's strength 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 an average forecast of 51.2 in a poll of economists. A reading of more than 50 indicates expansion, while a figure below that 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 gross domestic product growth to comfortably exceed the government's bottom line in the coming quarters."

A breakdown of the sub-indices 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 been felt by larger firms only.

"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.