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China manufacturing index hits 18-month high: govt

01 november 2013, 14:49
Chinese manufacturing grew at its strongest pace in 18 months in October, figures showed Friday, but government and independent analysts warned underlying data suggest economic weaknesses remain, AFP reports.

The results are the latest to indicate the world's number two economy is gradually emerging from a growth slowdown at the start of the year.

The official purchasing managers' index (PMI) of activity in factories and workshops around the country climbed to 51.4 last month from 51.1 in September, the National Bureau of Statistics (NBS) said on its website.

The reading was the highest since 53.3 in April 2012. Anything above 50 indicates expansion while a figure below signals contraction.

"China's official PMI rose to 51.4 in October, surprising slightly on the upside, suggesting that the economy is still in an expansion mode," ANZ bank economists Liu Li-Gang and Zhou Hao said in a report after the release.

Also Friday, British bank HSBC said its PMI had hit a seven-month high of 50.9 in October, unchanged from a preliminary reading last week, but much higher than its September figure of 50.2.

Official data last month showed China's economy -- a key driver of regional and global growth -- expanded 7.8 percent in July-September, snapping two quarters of slowing.

"China is on track for a gradual growth recovery," HSBC chief economist for China Qu Hongbin said in the bank's release.

He also said stronger manufacturing growth momentum helped employment expand for the first time since March. "This in turn should support private consumption growth in the coming months."

However, NBS researcher Zhao Qinghe warned in a comment on its website: "The forces driving up the PMI reading were imbalanced as the rebound in subindexes other than output remained relatively weak."

Zhao noted that small companies "still face numerous difficulties", adding State Council measures for promoting their development must be implemented to "further consolidate foundation of China's economic stabilisation and improvement".

Bank of America Merrill Lynch economists also warned against overoptimism regarding the "above consensus" official figure, saying the scope for "further improvement ... is limited".

The gain in the index was mostly fuelled by higher output owing to a pick-up in the economy as well as inventory restocking.

They added that new orders, including for exports, slowed, suggesting "both domestic and external demand may have moderated somewhat after a nice rebound in previous months".

Nomura International analyst Zhang Zhiwei said in a report the figures bode well for other October figures to be released next, adding that improved export data from South Korea Friday was a cause for optimism.

But he added: "Nonetheless, we maintain our view that the recovery is unsustainable, as monetary policy tightening will likely continue given the strong PMI, and with new orders falling."

Zhang added that Nomura expects China's economic growth to slow to 7.5 percent in the final three months of this year and to 6.9 percent next year.

News of the PMI figures was welcomed cautiously, with Shanghai and Hong Kong stocks flat in the afternoon.

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