Manufacturing activity in China hit a five-month high in October, HSBC said yesterday, easing fears of a hard landing in the world’s second-largest economy.
The preliminary HSBC purchasing managers’ index (PMI) stood at 51.1 in October, up from 49.9 in September and the first time it has gone above 50 since June, the British banking giant said in a statement.
A reading above 50 indicates the sector is expanding, while a reading below 50 suggests a contraction.
The final PMI reading for October is due to be released on November 1, but the preliminary data shows a pick-up in China’s output and orders despite economic turmoil in the United States and Europe.
HSBC chief economist Qu Hongbin said the latest data indicated China’s economy was not headed for a hard landing, despite slowing export growth and tight credit conditions aimed at curbing inflation.
“Thanks to the pick-up in new orders and output PMI rebounded back into expansionary territory during October, marking a steady start to manufacturing activities in the fourth quarter,” he said in the statement.
The PMI figures also showed a slowing in input prices, a measure of the cost of raw materials, he said, indicating government steps to rein in high inflation might be making an impact.
China’s benchmark consumer price index rose 6.1 per cent year-on-year in September, slowing only marginally from a 6.2 per cent rise in August but retreating from a more than three-year high of 6.5 per cent in July.
Tao Dong, a Hong Kong-based economist with Credit Suisse, said the PMI figures were better than expected, but cautioned that the world’s second-largest economy may slow further.
“I think China’s economic growth will continue to slow down, which means (further) tightening measures are rather unlikely for the time being,” he said.
Ren Xianfang, an economist with research firm IHS Global Insight, said the September data would provide a boost to market confidence amid fears over China’s debt-laden banking system and a worsening global economic outlook.
But she said the data did not change the worsening outlook for the Chinese economy this year due to woes in the eurozone and the United States.
“China is rather unlikely to hold up well when the outlook of the eurozone and the United States, which are the country’s two biggest markets, is bleak,” she said.
China’s economic growth eased to 9.1 per cent in the third quarter from 9.5 per cent in the second quarter as government efforts to tame inflation and economic turbulence in Europe and the United States curbed activity.
The Chinese commerce ministry has warned of a “severe” outlook for foreign trade in the coming months after official data showed year-on-year export growth slowed to 17.1 per cent last month from 24.5 per cent in August.
China is also under intense pressure from the US to let the yuan strengthen at a faster pace.