Beijing: China’s economy is finally regaining traction, official and private sector factory surveys showed on Thursday, although the recovery remains sluggish with the latter recording its 12th straight month of slowing growth.
Evidence is mounting that the economy revived in October after domestic credit curbs and poor demand from overseas markets pushed economic growth in the third quarter to its weakest rate since the depths of the global financial crisis.
The final reading for the HSBC Purchasing Managers’ Index rose to 49.5 in October—just shy of the 50-point line that divides accelerating from slowing growth—from 47.9 in September. The reading was the highest since February, and deviated more than usual from the October flash, or preliminary, reading of 49.1 released last week.
“October’s final PMI rose to an eight-month high, implying that China’s industrial activity continues to bottom out following a modest pick-up last month,” wrote HSBC economist Hongbin Qu in a statement accompanying the survey.
“This is mainly driven by the increase of new orders, thanks to the filtering-through of the earlier easing measures, while exports outlook remains challenging.”
The new orders sub-index rose to 51.2—its first time in expansionary territory since October of last year.
Earlier, the October PMI reading from the National Bureau of Statistics showed that index rose to 50.2, from 49.8 in September, just below a 50.3 forecast by a Reuters poll last week and confirming a trend towards recovering growth in the world’s second-largest economy.
“The continued rebounding of sub-indexes including new orders, export orders and quantity of purchases, indicates companies’ de-stocking process has basically ended,” said Zhang Liqun, a researcher with the Development Research Centre of the State Council, said in a statement accompanying the index.
“We expect China’s economic growth will end its decline and rebound slightly in the future.”
Indeed, the two surveys seem to indicate that the economy stabilized in September and began perking up in October.
Better fourth quarter seen
“The return of the PMI above 50 suggests economic momentum has indeed picked up. It indicates the effect of policy easing may have been stronger than the consensus expected,” Zhiwei Zhang of Nomura wrote in a comment emailed to Reuters.
“We believe macro data will continue to surprise on the upside in coming months, as the government continues to ease policy through the period of leadership transition.”
China is widely expected to see an improved fourth quarter after economic growth slowed to an annual 7.4% in the third quarter—putting it on track to beat the government target of full-year growth of 7.5% or above.
The private HSBC PMI captures views mainly of smaller, export-oriented firms in China’s vast factory sector.
Manufacturers reported higher input costs—particularly for raw materials—but for the first time in a year were able to pass those on by raising prices, Markit Economics, which compiles the survey for HSBC, wrote in an accompanying analysis.
An employment sub-index also rose to its highest level in eight months, although overall factories continued to shed jobs. China has so far avoided the massive job losses or urban unrest feared by the ruling Communist Party, which has seen a year of political infighting as factions ready for a once-in-a-decade leadership transfer in November.
An output sub-index in the HSBC PMI also improved after a September dip, and average lead-times—a proxy for how busy factories are—lengthened.
“Survey respondents that experienced longer delivery times attributed deteriorated supplier performance to a rise in the number of orders placed to vendors,” Markit wrote.
On the export front, “weak demand from Europe and the US was reported”, it said.
After monetary loosening moves earlier in the year, credit supply in China has increased but inflation has stayed low, allowing planners to relax and hold off on further adjustments. Some expect additional moves after the 18th Party Congress in November, to present the new leadership with an economic boost.