China’s Manufacturing Registers Fastest Growth in 16 Months

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Sept. 2 – Mainland China’s manufacturing grew at its fastest pace in 16 months according to the purchasing managers’ index (PMI) compiled by the China Federation of Logistics and Purchasing.

The index jumped to 54 last month from 53.3 in July fueled by aggressive growth in new lending and confidence on China’s huge RMB4 trillion plan. This is the fifth consecutive month that the index has been above 50; indicating that manufacturing is expanding. The PMI tracks new orders, output, new export orders, imports, employment and input prices.

Economists quoted in the South China Morning Post said the signs of a manufacturing recovery were becoming more evident and signaled to improving orders during the peak season when China based factories rush to fill overseas Christmas orders.

“The recovery trend looks good,” Deutsche Bank chief economist Ma Jun told the South China Morning Post. “It will further improve in the remaining months and point to a better Christmas than last year when there was a deep recession mood.”

The index hints that Beijing may just reach its goal of 8 percent growth for this year. While the United States is still suffering from high unemployment rates, demand is still expected to be there as retailers restock for the coming months.

Chief China economist with HSBC in Hong Kong, Qu Hongbin,told Reuters: “With the construction works being implemented at full speed to generate demand for industrial goods, domestic demand has been substantially lifted.”

According to another PMI conducted by British research firm Markit and published by HSBC showed the index moving from 52.8 in July to 55.1 in August.

In Markit’s August survey of more than 400 firms it highlighted the following:
• Firms attributed the increase in output to a better business climate and gains in new business both at home and abroad, though domestic demand was still the main driver.
• Firms’ backlogs of work rose at the fastest rate since May 2005, as manufacturers struggled to increase capacity to catch up with strong gains in new business.
• Inventories of finished goods fell for the second month in a row, as some firms met increased demand for their products by drawing down their stocks.
• Firms increased their purchases of inputs for the fifth month in a row, expanding at the third-sharpest pace in the survey’s history.
• Employment rose for the third month in a row, and at the fastest pace since April last year, due to rising production requirements and the intake of new graduates.
• Input inflation surged, the second month that prices have increased after a nine-month decline, as raw materials such as steel cost more.
• Output price inflation lagged that of inputs, as companies were unable to pass on all of their rising costs, though some firms said stronger demand had improved their pricing power.