Wednesday, October 24, 2012

China manufacturing contraction eases: HSBC

BEIJING: China's manufacturing activity contracted in October but at a slower pace than in previous months, HSBC said Wednesday, a sign the slowdown in the world's number two economy is bottoming out.

The preliminary purchasing mangers' index (PMI) released by the British banking giant hit 49.1 this month, the highest level in three months and up from 47.9 in September.

A reading above 50 indicates growth in the key sector, while one below signals contraction.

While the figure marks the 12th straight month of contraction, it is also the second consecutive month of improvement and adds to recent indications that China's economy is on the mend after a slowdown that began early last year.

The index, compiled by information services provider Markit and released by HSBC, tracks manufacturing activity and is a closely watched barometer of the health of the economy.

China's official PMI figure was 49.8 for September, a second straight contraction. October's official figures are expected on November 1, the same day HSBC will release its final result.

HSBC economists Sun Junwei and Qu Hongbin said in a report that October's reading came as total new orders picked up to a six-month high, while new export orders had their best showing in five months.

They also noted that the PMI result "reflected the filtering through of earlier easing measures" introduced by policymakers this year to boost growth.

Those include two interest rate cuts in quick succession as well as the loosening of restrictions on how much money banks must keep on hand in an effort to boost lending.

China last week said the economy grew 7.4 per cent in the three months through September, slowing for the seventh straight three-month period and its worst performance since the first quarter of 2009.

Improvements in September for exports, industrial production and retail sales spurred optimism that the worst may be over for the Asian giant, although Sun and Qu warned that problems in overseas economies and China's job market continued to weigh.

"Growth has likely bottomed out and is headed for a gradual recovery into 4Q (the fourth quarter)," they said, referring to the current final quarter of this year until December.

"With inflation still under control and downside risks to growth lingering, China should continue with its current easing efforts to secure a firmer growth recovery," they wrote.

China's consumer price index slowed in September, rising 1.9 percent year-on-year, slightly down from the 2.0 percent recorded in August.

Inflation plagued China's economy in much of 2010 and 2011, with CPI peaking in July last year at 6.5 percent.

China is preparing for a once-a-decade leadership change at a Communist Party meeting that starts November 8.

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