China Oct fac­tory ac­tiv­ity ex­pands

Kuwait Times - - BUSINESS -

Ac­tiv­ity in China’s man­u­fac­tur­ing sec­tor ex­panded at the fastest pace in over two years in Oc­to­ber thanks to a con­struc­tion boom, with smaller firms grow­ing more up­beat, sug­gest­ing the world’s sec­ond­largest econ­omy is sta­bil­is­ing and get­ting on stead­ier foot­ing.

Signs of a more broader-based re­cov­ery will be wel­comed by the govern­ment amid grow­ing views that a hous­ing rally may have peaked. Much of China’s bet­ter-than-ex­pected growth this year has been highly re­liant on spend­ing by of­ten in­ef­fi­cient state firms as pri­vate in­vest­ment lan­guished.

The of­fi­cial Pur­chas­ing Man­agers’ In­dex (PMI) stood at 51.2 in Oc­to­ber, much stronger than Septem­ber and the high­est read­ing since July 2014. Econ­o­mists had ex­pected a far more mod­est read­ing of 50.4, in line with the pre­vi­ous month. Lev­els above 50 in­di­cate an ex­pan­sion in ac­tiv­ity on a monthly ba­sis.

China’s econ­omy ex­panded at a steady 6.7 per­cent clip in the third quar­ter and looks set to hit Bei­jing’s full-year tar­get of 6.5 to 7 per­cent, fu­eled by stronger govern­ment in­fra­struc­ture spend­ing, record bank lend­ing and a red-hot prop­erty mar­ket that are adding to a grow­ing pile of debt.

The con­struc­tion spree has fu­eled stronger de­mand and higher prices for build­ing ma­te­ri­als from ce­ment to steel, boost­ing sales for re­lated com­pa­nies from en­gi­neer­ing firms to prop­erty agents. Global con­struc­tion equip­ment maker Cater­pil­lar said last week it sees fur­ther mod­est im­prove­ment in 2017. “The sig­nif­i­cant im­prove­ment in PMI is largely driven by com­mod­ity prices,” said Sin­ga­pore-based econ­o­mist Zhou Hao at Com­merzbank.

Bei­jing’s plans to cut ex­cess in­dus­trial ca­pac­ity and fac­to­ries’ need to re­plen­ish low in­ven­to­ries are also buoy­ing prices for com­modi­ties such as coal and steel, and boost­ing prof­its, said David Qu, a Shang­hai-based econ­o­mist from ANZ.

Fac­tory out­put ac­cel­er­ated in Oc­to­ber, with the sub-in­dex ris­ing to 53.3 in Oc­to­ber from 52.8 in Septem­ber. To­tal new or­ders also showed solid im­prove­ment, ris­ing to 52.8 from Septem­ber’s 50.9. But new ex­port or­ders con­tracted slightly, point­ing to per­sis­tent slug­gish­ness in global de­mand that has weighed on Asia’s ex­port-re­liant economies for nearly two years.

A sim­i­lar busi­ness sur­vey showed ac­tiv­ity in China’s ser­vices sec­tor ex­panded at the fastest pace since De­cem­ber 2015, with the of­fi­cial read­ing pick­ing up to 54.0 in Oc­to­ber from 53.7 in Septem­ber.


Both the of­fi­cial fac­tory sur­vey and a pri­vate sur­vey by Caixin/Markit showed con­di­tions were im­prov­ing for smaller and medium-sized Chi­nese firms, which have strug­gled for trac­tion as Bei­jing re­lies more on large state firms to spur ac­tiv­ity.

The Caixin sur­vey showed out­put ex­panded at the quick­est pace since March 2011. If the trend does not prove to be a flash in the pan, it may sug­gest that govern­ment ef­forts to re­vive weak pri­vate in­vest­ment are start­ing to pay off. Pri­vate in­vest­ment growth picked up to 4.5 per­cent in Septem­ber af­ter fall­ing to record lows in re­cent months.

“I sus­pect the growth has more to do with a re­cov­ery in pri­vate in­vest­ment,” said Cap­i­tal Eco­nom­ics’ Ju­lian Evans-Pritchard in Sin­ga­pore. “The govern­ment has been do­ing a lot to lower the bor­row­ing costs for the pri­vate sec­tor. But I doubt the strength will sus­tain as those mea­sures are not fun­da­men­tal re­forms,” He said.


While Asian stock mar­kets edged higher af­ter the up­beat China re­ports, fi­nan­cial mar­kets re­main un­con­vinced about how long the re­bound can last, es­pe­cially given the rapid rise in debt be­ing used to fuel growth, said Cliff Tan, East Asia head of global mar­kets re­search at Bank of Tokyo-Mit­subishi UFJ. —Reuters

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.