China's manufacturing growth hits 18-month high

Workers check the newly produced contact lenses in a factory of the CST Automation Technology CO., LTD, a non-public enterprise, in Baiyin City, northwest China's Gansu Province, Oct. 31, 2013. (Xinhua/Guo Gang)

China's purchasing managers' index (PMI) for the manufacturing sector rose to 51.4 percent in October, hitting a new high since May 2012, according to new data released Friday.

The figure was 0.3 percentage points higher than September, data from the National Bureau of Statistics (NBS) and China Federation of Logistics and Purchasing showed.

China's manufacturing PMI has risen for four consecutive months, showing a steady upward trend in manufacturing. A figure above 50 percent signals expansion.

Zhao Qinghe, a senior NBS statistician, attributed the strong PMI to expanding production after corporate confidence was boosted by government measures this year to stabilize growth and restructure the economy.

The sub-index for production rose for a fourth month to 54.4 percent, up 1.5 percentage points from September.

As production picked up, companies also bought more raw materials, driving the sub-index for materials purchasing up 0.2 percentage points to 52.7 percent.

Zhang Liqun, a researcher with the Development Research Center of the State Council, also said the October figure confirmed the stabilizing trend of the country's economic growth.

China's gross domestic output (GDP) expanded by 7.7 percent in the first nine months, which is higher than the government's full-year target of 7.5 percent. GDP growth in the third quarter accelerated to 7.8 percent from 7.5 percent in the second, NBS data showed.

The new figure was in line with the final October PMI released Friday by the HSBC, which shows the manufacturing PMI rose to a seven-month high of 50.9 percent.

Qu Hongbin, chief economist with HSBC, said the strong momentum should in turn support private consumption growth in the coming months. "China is on the track for a gradual growth."

But experts also pointed out that the prospects for future growth are far from rosy.

"Although the manufacturing PMI rose for a fourth month, forces that drove up the index were not balanced, as sub-indices other than production were relatively weak," according to Zhao Qinghe.

The NBS sub-index for employment and raw material inventories both rose slightly by 0.1 percentage point, but were both still under 50 percent.

The sub-index for new orders dropped 0.3 percentage points to 52.5 percent and business outlook was down by 0.9 percentage points from a month earlier to 57.5 percent in October.

Zhang said that Chinese manufacturers remained cautious about future market prospects.

"Judging from the situations of investment, export and consumption, the foundation for growth is not very solid and the country's capability of endogenous growth remains relatively weak, though the economy has stabilized at around 7.5 percent," Zhang said.

According to official data, China's urban fixed-asset investment grew 20.2 percent year on year in the first nine month of 2013, easing slightly from 20.5 percent in the same period last year.

Total sales of consumer goods expanded by 12.9 percent in the first nine months, lower than 14.1 percent seen in the same period of 2012, according to previous NBS data.

Data also showed that the sub-index for new export orders dropped 0.3 percentage points to 50.4 percent.

Zhuang Jian, an economist at the Asian Development Bank, said the figures pointed to the hardship of small Chinese companies.

A breakdown by company size shows that PMI for large enterprises rose to 52.3 percent in October, PMI for medium-sized firms edged up to 50.2 percent, while that for small manufacturers fell to 48.5 percent.

The government should intensify its support for small- and medium-sized enterprises in its bid to restructure the economy, according to Zhuang.

Chang Jian, economist with Barclays, believed there will be a softening momentum for economic growth in the fourth quarter of the year, partly due to the pullback of indices for new orders and new export orders.

"Rather than bottoming out, we look for slower growth in the coming quarters," according to Chang.

She forecast China's economic growth to slow to 7.1 percent in 2014 from a possible 7.6 percent for this year, with quarterly growth moderating to 7.5 percent over the next two quarters.