By Bloomberg News
June 1 (Bloomberg) -- China’s manufacturing expanded for a third month, adding to evidence that the world’s third-largest economy is recovering from its deepest slump in almost a decade.
The official Purchasing Manager’s Index was at a seasonally adjusted 53.1 in May after registering 53.5 in April, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.
Loan growth, accelerating fixed-asset investment and rising retail sales have spurred confidence that Premier Wen Jiabao’s 4 trillion yuan ($586 billion) stimulus package is working. Stocks climbed in China and Australia’s dollar traded near an eight- month high on optimism Chinese demand for commodities will rise.
“The Chinese economy is well on track for recovery and economic growth is picking up steam,” said Lu Ting, an economist at Merrill Lynch & Co. in Hong Kong. “The PMI may trigger a rally for asset prices, especially commodity prices.”
The Shanghai Composite Index rose 2.3 percent as of 11:11 a.m. local time, taking this year’s gain to 48 percent as investors bet that stimulus spending will revive earnings.
China’s manufacturing expanded for a second month, according to another PMI, released today by CLSA Asia-Pacific Markets. CLSA’s measure gives different results because it gives a larger weighting to smaller companies, according to Merrill Lynch’s Lu.
‘Gaining Traction’
“For the first time the PMI shows genuine evidence that policy really is gaining traction,” said Eric Fishwick, head of economic research at CLSA in Hong Kong. A jump in orders and declines in companies’ inventories suggest “sustained output growth in months to come.”
By the end of April, China had built 20,000 kilometers (12,430 miles) of rural roads, 214,000 low-rent homes, 445 kilometers of highway, and 100,000 square meters (1.08 million square feet) of airport buildings under the stimulus plan, the National Development and Reform Commission said on May 21.
“Economic growth may continue to pick up in the future as accelerating investment and consumer demand boost industrial production,” Zhang Liqun, an economist at the State Council Development and Research Center, said in a statement with the official PMI. Zhang said that while business sentiment remains “weak,” a PMI reading above 50 shows that “the economy will continue to recover.”
Export Orders Climb
In the government-backed PMI, the export order index increased to 50.1 from 49.1 in April. The output index fell to 56.9 from 57.4 and the new order index dropped to 56.2 from 56.6.
Dongfeng Motor Group Co., China’s third-largest automaker, said stimulus measures helped boost sales in the first four months of the year.
Industrial production growth may accelerate to 8 percent this quarter as stimulus spending gathers momentum, up from 7.3 percent last month and 5.1 percent in the first three months, the Ministry of Industry and Information Technology said May 22. Output may increase 10 percent in the second half, it added.
China’s economic growth may quicken to 6.8 percent this quarter from 6.1 percent in the first three months, according to a Bloomberg News survey of economists.
The official PMI, released jointly with the statistics bureau, spans measures of manufacturing activity including orders, inventories, output and employment.
To contact the reporters on this story: Paul Panckhurst in Beijing at ppanckhurst@bloomberg.net
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