China January official PMI seen at 9-month high as demand rises

BEIJING Tue Jan 29, 2013 4:33am EST

BEIJING (Reuters) - China's factory activity in January probably expanded at its fastest pace in nine months, adding to signs that recovery momentum is building as domestic demand strengthens.

The median forecast of 14 economists polled by Reuters showed China's official purchasing managers' index (PMI) in January likely rose to 50.9 from December's 50.6 - a fourth consecutive month of accelerating activity in the country's vast manufacturing sector.

The 50-point line demarcates accelerating from slowing activity in PMI survey methodology.

"China's economic growth this year will be mainly driven by its domestic demand, though the external environment is seen as better than last year," Nie Wen, an analyst at Hwabao Trust in Shanghai, told Reuters.

Analysts say Chinese factories are approaching the end of a destocking cycle, which is usually followed by a rebuilding of investories that will raise industrial output in 2013.

"Recent figures from inventory of finished goods to backlogs of orders all pointed to the ending of a destocking cycle, which is good news for the economy," he added.

But some economists caution that the timing of the Chinese Lunar New Year will distort all economic indicators for January and February, including the PMI, as Chinese factories typically shut or run at half speed during the week-long holiday.

Xu Gao, chief macro economist at Everbright Securities said it was necessary to wait before drawing a firm conclusion.

"The reading of 50.9 is not that high, especially considering that the Lunar Chinese New Year falls in February this year and was in January last year," Xu said.

The world's second-largest economy snapped out of a seven-quarter-long slowdown and grew 7.9 percent between October and December, though the 2012 annual pace of 7.8 percent marked the weakest showing in 13 years.

The improvement in the last quarter's GDP data followed a December spurt in factory output and retail sales on Beijing's pro-growth policies.

Economists expected the economic recovery trend to extend into this year, with 2013 GDP growth likely rebounding to 8.1 percent, according to a benchmark Reuters poll conducted last week.

A flash PMI published last week by HSBC showed China's factory sector accelerated to a two-year high in January, supported by both local and foreign orders.

The central bank has moved cautiously in easing monetary policy to bolster economic growth, wary of reigniting inflation and fanning property prices, which remain high.

It cut interest rate twice in the space of one month between last June and July but has since refrained from further cuts and opted to inject short-term liquidity via open market operations.

The official PMI generally paints a rosier picture of the factory sector than the HSBC PMI as the official survey focuses on big, state-owned firms while the latter mainly captures smaller and private firms.

There are also differing approaches to seasonal adjustment between the two surveys.

The official PMI survey will be released on Friday, February 1 at 0100 GMT. The final reading of the HSBC manufacturing PMI is due at 0145 GMT the same day.

FORECASTS

BBVA 50.5

China Capital Securities 50.7

CICC 51.0

Citi 50.9

Everbright Securities 51.0

Forecast Pte 51.2

Guotai Junan Securities 50.9

Hwabao Trust 50.8

Industrial Bank 50.8

Nomura 50.9

Peking First Advisory 51.0

Societe Generale 50.8

Standard Chartered Bank 51.0

Zheshang Securities 50.9

-------------------------------

Median 50.9

High 51.2

Low 50.5

Prior 50.6

No. of responses 14

(Reporting by Aileen Wang, Tina Qiao and Kevin Yao; Editing by Nick Edwards and Kim Coghill)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article