December 1, 2016 / 1:56 AM / a year ago

China November factory activity expands modestly, inflation pressure builds: Caixin PMI

BEIJING, Dec 1 - China’s factory activity expanded modestly in November, though at a slightly slower pace than in the previous month, while inflationary pressures showed signs of building, a private business survey showed on Thursday.

The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) fell to 50.9 on a seasonally adjusted basis, easing from 51.2 in October but slightly better than analysts’ forecasts of 50.8.

The index has now been above the 50-point neutral level which separates expansion in activity from contraction for five straight months, adding to views that in the world’s second-largest economy growth has stabilized thanks to a credit and construction boom.

Output and new orders also expanded in November at slightly slower rates than October, though export orders were broadly unchanged, while companies continued to shed staff, though at the slowest pace in 18 months.

But input prices rose at the fastest pace since March 2011, with a reading of 65.8, up from 57.2 the previous month.

Prices charged by Chinese manufacturers for their goods increased for the ninth straight month, with the rate of output price inflation accelerating to its sharpest since February 2011.

“Index readings for both output and new orders declined, but those tracking input and output prices rose at a faster pace to hit their highest levels in five years, pointing to further intensification of inflationary pressure,” Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a note with the 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.

Profits at industrial companies have rebounded in recent months, but the government warned this week that the gains have been too reliant on higher prices, without enough organic growth.

Indeed, private companies say profits are being squeezed by slow sales growth and rising costs.

“Factories have pretty stable orders, but profits are falling and product requirements from clients are getting higher,” said Tian Weiguang, a manager at exporter Sunshine Ceramics in Tangshan, Hebei province.

Reporting by Elias Glenn; Editing by Kim Coghill

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