China’s activity expands again driving hopes of sustained growth

ACTIVITY in China’s manufacturing sector expanded again in September, an official survey showed on Saturday, which may indicate that recent positive momentum can be sustained.

The official purchasing managers’ index (PMI) stood at 50.4 points in September, identical with the previous month’s level. A reading above 50 points shows growth on a monthly basis. September’s 50.4 point reading matched the prediction of a Reuters poll.

After a significant pick-up in March, China’s official PMI slipped, falling below 50 points in July, before showing expansion in August.

In an encouraging sign, new export orders increased in September, rising to 50.1 points from the previous month’s 49.7 points.

In September, output edged up to 52.8 points from 52.6 points in August.

Dependence A subindex for smaller firms fell, while performance at larger companies improved, a sign that the government’s dependence on big state firms for growth this year has not changed.

Economists say the pattern over the past few months suggests sustained economic growth, but a growing dependence on government spending and an overheated property market may pose increased risks later this year with debt levels continuing to rise.

Industrial profits rose at the fastest pace in three years in August. But profits remained uneven, as traditional heavy industries with excess capacity such as steel still struggled for growth. Sectors like high-tech, car manufacturing and shipbuilding showed strong expansion, the survey showed.

Jobs were again lost, though at a slower pace. Job losses could be rising as the government has pledged broad capacity cuts across a range of industries.

Industrial overcapacity remains one of the main drags on economic growth.

Beijing has pledged to quicken the pace of its industrial capacity cuts, particularly in steel, after falling behind earlier in the year.