By Bloomberg News - Oct 2, 2011 11:00 PM GMT+0700
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A factory worker removes lithium ion batteries from a charger at the China BAK Battery Inc. facility in Tianjin, China. Photographer: Keith Bedford/Bloomberg
Oct. 3 (Bloomberg) -- Louis Kuijs, Hong Kong-based chief Asia economist at MF Global Holdings Ltd., talks about the outlook for the China and global economies. Signs of stability in China’s manufacturing industry in September may ease concern the nation will suffer a slump in economic expansion that escalates the risk of another global recession. Kuijs speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Signs of stability in China’s manufacturing industry in September may ease concern the world’s second-largest economy will suffer a slump in economic expansion that escalates the risk of another global recession.
The Purchasing Managers’ Index published Oct. 1 by the China Federation of Logistics and Purchasing rose for a second month, to 51.2, with new export orders gaining and an inflation measure -- factories’ input costs -- moderating. A separate PMI from HSBC Holdings Plc and Markit Economics on Sept. 30 was unchanged from August, at 49.9. Readings above 50 signal expansion.
“That’s a nice break in a grossly bearish environment,” Tao Dong, a Hong Kong-based economist at Credit Suisse Group AG, said of the Oct. 1 PMI data. “I don’t think that the Chinese economy is out of the woods, but any good news is great news.”
The figures bolster the odds that Premier Wen Jiabao’s government will succeed in defusing the fastest gains in consumer prices since 2008 without a collapse in China’s growth, the strongest among the major economies. Twelve percent of global investors in a Bloomberg poll last week predicted a slowdown in Chinese gross domestic product gains to less than 5 percent within a year, a pace unseen in the past two decades.
Wen, on the eve of the weeklong National Day holiday that began Oct. 1, said the trend of relatively fast consumer price gains was “under control.” The Oct. 1 manufacturing reading was the highest in four months, and exceeded the 51.1 median estimate in a Bloomberg News survey of 13 economists.
Stock Slide
The MSCI All-Country World Index of stocks posted its biggest quarterly loss since 2008 as concerns increased that Europe’s debt crisis will trigger a global recession and the Federal Reserve said there are “significant downside risks” to the U.S. economy. The U.S. dollar strengthened as investors looked for a safe haven and oil fell to a one-year low.
In China, the benchmark Shanghai Composite Index fell Sept. 30 to its lowest close since April 2009 on heightened risks of recession in the U.S. and Europe and also on concerns that the government’s campaign to curb inflation by tightening monetary policy will cause a deeper-than-anticipated slowdown in the Chinese economy.
China’s economy is slowing gradually and the chances of a “hard landing” are small, Bank of America Corp. economist Lu Ting said. At the same time, investors “should also resist being too positive on this PMI reading as the reading of 51.2 might be slightly biased upwards by seasonality,” he said.
September Pattern
Manufacturing in China tends to rise in September ahead of the weeklong National Day holiday, when factories close, and before the Christmas shopping season in the U.S. and Europe. The reading for September 2010 was the highest in four months, the same as it was this year, and in September 2009, the measure was the highest in 15 months.
Ken Peng, senior China economist at BNP Paribas SA, said the 0.3 percentage point gain in the September PMI from August was the smallest month-to-month increase for a September on record. The average increase was 2.3 for the month in the period from 2005 to 2010, he said.
The manufacturing index compiled by the logistics federation and National Bureau of Statistics is based on a survey of purchasing managers at more than 820 companies in 20 industries. It hasn’t fallen below 50 since February 2009.
The index from HSBC Holdings Plc and Markit Economics, which reflects a survey of more than 400 companies, is weighted toward small businesses that have been hit harder by tightening measures, according to economists including Bank of America’s Lu and Australia and New Zealand Banking Group Ltd.’s Liu Li-Gang. The official PMI has a greater focus on larger enterprises, they say.
Job Gains
The data released by the logistics federation and statistics bureau showed that the measure of new export orders rose to 50.9 from 48.3 in August. A gauge of input prices declined to 56.6 from 57.2 and the employment index gained to 51, the highest level since April.
“Stable PMI readings tend to alleviate the concerns policy makers have on slowing activity growth,” said Song Yu, an economist for Goldman Sachs Group Inc. “We now see greater downside risks to the global outlook which if realized will put more downward pressure on China’s growth and inflation.”
The rout in global stocks in recent weeks forced Sany Heavy Industry Co., China’s biggest machinery maker and run by the nation’s richest person, to delay its $3.3 billion Hong Kong stock sale.
Korean Exports
Even with the deterioration in confidence in advanced economies, economic data indicate Asia will continue to expand, while at a slower pace. South Korea’s exports climbed 19.6 percent from a year earlier in September, compared with a 25.9 percent gain in August, the country’s Ministry of Knowledge Economy said two days ago. The median estimate in a Bloomberg News survey of 11 economists was for a 16.6 percent gain.
Moderation in growth may help dissipate consumer-price pressures that have prompted central banks from China and South Korea to Thailand, Malaysia and India to boost borrowing costs this year.
Inflation in China rose to a three-year high of 6.5 percent in July before easing in August to 6.2 percent. The People’s Bank of China has raised interest rates five times and increased the reserve requirement nine times in the past 12 months.
The statistics bureau is scheduled to release inflation data for September on Oct. 14 and GDP figures for the third quarter on Oct. 18.
Fifty-nine percent of respondents in the quarterly Bloomberg Global Poll of investors, analysts and traders who are Bloomberg subscribers said economic growth in China may decline to less than 5 percent annually by 2016. Growth was 9.5 percent in the second quarter.
In the same survey, about three-quarters of respondents said they expect the euro-area economy to fall into recession in the next 12 months, with more than a third saying deteriorating European debt will derail the world economy over the next year.
China’s PMI “is a very strong number in the context of the gloomy global outlook,” ANZ Bank’s Liu said.
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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