China manufactures a bounceback as industrial growth rates pick up

Published on Tuesday 31 August 2010 22:23

FEARS of a slowdown in the Chinese economy were eased yesterday with news of rises in both manufacturing and new car sales in August.

The world's second-biggest economy appeared to have been slowing its rapid expansion earlier this year - with growth falling to 10.3 per cent during the second quarter.

However, HSBC's purchasing managers' index (PMI) for the country rose to 51.9 per cent in August - its highest level in three months.

Hongbin Qu, chief economist for China at HSBC, said: "This reconfirmed our long-held view that China is moderating rather than melting down."

The state-affiliated China Federation of Logistics and Purchasing said its PMI rose to 51.7 in August from 51.2 in July. Numbers above 50 show manufacturing activity expanding, and the federation's PMI readings have remained above 50 for 18 straight months after slowing in late 2008 and early 2009.

Federation analyst Zhang Liqun said: "The rise in the PMI for August shows that China's economy will not suffer a serious correction."

Ben Simpfendorfer, an economist with Royal Bank of Scotland, said: "The new orders to finished goods inventory PMI has been a good indicator of turning points in the cycle over the past two years.

"It suggests the current correction began in the middle of the first quarter and was tentatively signalling stabilisation even before today's sharp rise in the ratio."

Bank of America Merrill Lynch agreed that the inventory and orders data boded well for a recovery in output in the coming months.

But it said weakening growth in the US and Japan would act as a drag on the economy and could prompt Beijing to slow the pace of the yuan's rise.

Signs that Chinese growth will continue at an elevated level may add to pressure from the US and other major trading partners for Beijing to let the yuan rise at a faster rate.

Some US business groups say the yuan is undervalued by up to 40 per cent and American lawmakers have called for punitive action against what they say are Chinese imports kept artificially cheap by exchange rate controls.

In June, China loosened the controls that had kept its currency trading at about 6.83 yuan per dollar since late 2008 to help Chinese exporters compete amid weak global demand.

The Chinese manufacturing figures along with forecasting-busting economic growth in Australia gave a boost to Asian stock markets, which have wilted the past month because of indicators suggesting that global growth is slowing.But some analysts remain sceptical about the buoyancy of the Chinese economy.

While the official manufacturing survey showed no signs of a major slowdown, adjusted for seasonal factors, the index was basically flat and - according to a report by investment bank Goldman Sachs - "suggests manufacturing activity growth remains significantly below its trend level".