Flash PMI for Oct brings cheer

A textile plant in Jiujiang, Jiangxi province. Policymakers are said to be trying to avoid a deeper slowdown after gross domestic product expanded 7.3 percent in the third quarter from a year earlier, the weakest pace in more than five years. [Provided to China Daily]

 

Resilient labor market, robust export demand help weather realty downturn

A Chinese manufacturing gauge rose in October, adding to signs a resilient labor market and export demand are helping the world's second-largest economy weather a housing market downturn. 

The preliminary Purchasing Managers' Index from HSBC Holdings Plc and Markit Economics was at 50.4, exceeding the median estimate of 50.2 in a Bloomberg News survey, which was also the level of September's final reading. Numbers above 50 indicate expansion. 

Chinese policymakers are trying to avoid a deeper slowdown after gross domestic product expanded 7.3 percent in the third quarter from a year earlier, the weakest pace in more than five years. While the government has relaxed home-purchase controls and pumped liquidity to lenders, the economy also got support from a pick-up in exports in September. 

"The momentum of the rebound in September is continuing into the fourth quarter," said Larry Hu, head of China economics at Macquarie Securities Ltd in Hong Kong. "The growth target is still about 7.5 percent, so targeted easing will carry on." 

Output, new orders and new export orders all increased at a slower rate, while output and input prices decreased at a quicker rate, suggesting disinflationary pressure intensified. The producer price index fell 1.8 percent in September from a year earlier, a record-tying 31st monthly decline, data last week showed. 

Chinese stocks declined and the yuan was little changed. 

"We continue to see downside risks," said Ding Shuang, senior China economist at Citigroup Inc in Hong Kong, as manufacturing activity isn't as good as the headline number indicates. The PMI will possibly be adjusted down in the final release, he said. 

The final HSBC-Markit PMI reading for October is due Nov 3. A separate manufacturing index from the National Bureau of Statistics and the China Federation of Logistics and Purchasing will be published Nov 1. 

Thursday's report, known as the Flash PMI, is typically based on 85 percent to 90 percent of responses to surveys sent to purchasing managers at more than 420 companies. It showed employment and inventory indexes improved. 

"While the manufacturing sector likely stabilized in October, the economy continues to show signs of insufficient effective demand," said Qu Hongbin, chief China economist at HSBC in Hong Kong. "This warrants further policy easing and we expect more easing measures on both the monetary as well as fiscal fronts in the months ahead." 

The government has eschewed across-the-board interest rate cuts and signaled it will tolerate a weaker expansion, leaving the economy headed for the slowest full-year growth since 1990. Premier Li Keqiang and Vice-Premier Zhang Gaoli expressed confidence in the economy after the release of GDP numbers.