HSBC: China's Manufacturing Output Hits Five-Month High

Data eases fears of a hard landing, but China won't be immune to the effects of economic woes in Europe and the United States, analyst says.

Manufacturing output in China hit a five-month high in October, HSBC said Monday, 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.

A reading above 50 indicates that the sector is expanding, while a reading below 50 suggests a contraction.

The final PMI reading for October is due to be released on Nov. 1, but the preliminary data shows a pickup in China's output and orders despite economic turmoil in the United States and Europe.

HSBC chief economist Qu Hongbin said the latest data indicates that China's economy is not headed for a hard landing, despite slowing export growth and tight credit conditions aimed at curbing inflation.

"Thanks to the pickup 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.

The PMI figures also shows a slowing in input prices -- a measure of the cost of raw materials -- he said, indicating that government steps to rein in high inflation might be making an impact.

China's benchmark consumer price index rose 6.1% year-on-year in September, slowing only marginally from a 6.2% rise in August but retreating from a more than three-year high of 6.5% 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 told AFP.

A Boost to Market Confidence

Ren Xianfang, an economist with research firm IHS Global Insight, said the September data likely will 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 does 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% in the third quarter from 9.5% 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 that year-on-year export growth slowed to 17.1% last month from 24.5% in August.

China also is under intense pressure from the United States to let the yuan strengthen at a faster pace.

Beijing says its currency controls are necessary to protect its manufacturing sector, which employs millions of workers, but the U.S. Senate this month approved a bill that would punish China for alleged manipulation.

The controversial proposal has drawn a furious response from Beijing, and Chinese Premier Wen Jiabao has said he is in favor of a "basically stable exchange rate" for the yuan.

Copyright Agence France-Presse, 2011

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