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China October factory activity expands at fastest in over two years: Caixin PMI
November 1, 2016 / 2:16 AM / a year ago

China October factory activity expands at fastest in over two years: Caixin PMI

A worker stands near a stainless steel product line at a factory in Dalian, Liaoning Province, China, February 29, 2016. REUTERS/China Daily

BEIJING (Reuters) - China’s factory activity expanded at its fastest pace in more than two years in October as a jump in domestic demand offset weak export orders, but companies continued to shed jobs, a private business survey showed on Tuesday.

The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) rose markedly to 51.2, beating analysts’ forecasts of 50.2 and much higher than September’s 50.1. The reading was the strongest since July 2014.

The index has now been above the 50-point neutral level which separates expansion in activity from contraction for four straight months, adding to growing views that the world’s second-largest economy is stabilizing thanks to a government infrastructure spending spree and a housing boom.

Output expanded in October at its quickest pace since March 2011, suggesting strengthening market demand and a further upturn in new business, the survey showed.

Overall new orders grew rapidly to 52.6 from September’s 50.8, marking its highest growth since July 2014.

However, new export orders contracted marginally after a blip up in September, suggesting that the stronger readings in October were due to improved domestic demand.

While companies were able to raise prices the most since early 2011, they also continued to cut staff to reduce costs, suggesting a brighter outlook for profits.

Factories shed jobs at a significant clip for the 36th month in a row, though the pace eased slightly from September.

The rate of input cost inflation also accelerated to the sharpest recorded since September 2011, largely due to increased prices for raw materials such as steel, copper and coal.

“The economy seems to be stabilizing for the moment, owing primarily to policies implemented to sustain growth,” Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a note accompanying the PMI report.

A construction boom fueled by government infrastructure spending and a housing market rally have helped to underpin the economy in recent months, with growth steadying at 6.7 percent in the third quarter from a year earlier.

Large state firms have dominated the growth scene, while small and mid-sized private firms that the Caixin survey focuses on have struggled.

Some economists, however, think the housing boom may have peaked as more cities impose curbs on property purchases to cool surging home prices.

Zhong also cautioned that feeble growth in private investment could pose a risk to sustainable growth.

“Supportive policies must be continued, or industrial output may be dragged down by a slowdown in investment,” Zhong said.

Reporting by Yawen Chen and Nicholas Heath; Editing by Kim Coghill; Yawen.Chen@thomsonreuters.com; +86 10 6627 1207

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