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Asia Economy Last Updated: Nov 1, 2013 - 6:50 AM

China’s manufacturing expanded at the fastest pace in 18 months in October
By Finfacts Team
Nov 1, 2013 - 6:44 AM

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China’s manufacturing expanded at the  fastest pace in 18 months in October according to the official PMI (purchasing manager’s index) data that is seen as reflecting the performance of large firms, in particular state-owned enterprises.

The official PMI came in at 51.4 in October, up from with 51.1 in September, according to the China Federation of Logistics and Purchasing. A reading above 50 indicates expansion in the manufacturing sector, while a reading below signalls contraction.

In another survey that reflects the views of private sector companies, after adjusting for seasonal factors, including the recent Golden Week (including the national holiday) holiday, the HSBC Purchasing Managers’ Index (PMI) posted at 50.9 in October, unchanged from the earlier flash reading, and up from 50.2 in September. Though only slight, it was the strongest improvement of operating conditions in China’s manufacturing sector in seven months.

Output at manufacturing plants in China increased for the third month running in October, and at the quickest pace since April. The expansion of output was accommodated by stronger client demand both at home and abroad, with new orders and new export orders rising at faster rates in October. Furthermore, it was the strongest expansion of new business from abroad in nearly a year, with a number of panellists citing greater demand in the US in particular.

The level of outstanding business at Chinese manufacturers increased solidly in October, and was generally associated with new order growth. Moreover, it was the strongest accumulation of work-in-hand in 31 months. October data signalled a renewed expansion of payroll numbers, as some firms planned to expand output. However, the rate of job creation was only slight. Increased production requirements led to higher levels of purchasing activity. Furthermore, the rate of increase accelerated since September to a solid pace, with 17% of surveyed firms noting more input buying.

Concurrently, stocks of purchases rose for the first time since January, albeit marginally.

Stronger demand for inputs led to a deterioration of vendor performance for the second successive month in October. That said, the rate at which delivery times lengthened was only slight.

Average production costs faced by Chinese manufacturers increased for the third month in a row during October. However, the rate of input price inflation eased slightly since the previous month. A number of survey respondents attributed inflation to higher raw material costs. Meanwhile, output charges were raised for the third successive month, though the rate of increase eased to a marginal pace.

Finally, stocks of finished goods increased for the first time in four months, albeit slightly.

Hongbin Qu, chief economist, China & Co-Head of Asian Economic Research at HSBC said: “The final HSBC China Manufacturing PMI rose to a seven-month high in October, with the stronger momentum of manufacturing growth translating into the first expansion of employment since March. This in turn should support private consumption growth in the coming months. China is on track for a gradual growth recovery.”

The HSBC China Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 420 manufacturing companies.

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