China manufacturing PMI sector maintains strong growth

The headline HSBC China Manufacturing Purchasing Managers’ Index (PMI) rose to 55.4 in October, from 55.0 in the previous month, signaling that growth of the Chinese manufacturing sector was maintained at the start of the fourth quarter. Data indicated that operating conditions in the sector improved at the sharpest rate for 18 months.

Output in the Chinese manufacturing sector continued to rise in October, extending the current period of expansion to seven months. Production growth remained strong, despite easing to the weakest for three months. Those survey participants that reported a rise in output frequently linked this to greater inflows of new business.

Levels of new business placed at Chinese manufacturers rose again in October. Although growth of new work remained substantial, it was the slowest for three months. New order volumes have now risen in each of the past seven months. Where an increase in sales was signaled, respondents widely attributed this to new product developments and improved demand from both domestic and external sources. Foreign order levels rose for the fifth month running in October, increasing at the strongest rate since June 2007. Anecdotal evidence suggested that firmer demand from abroad, with North America mentioned in particular, had pushed export sales higher.

Manufacturing employment in China increased for the fifth successive month in October. Job creation was the strongest since the start of the series in April 2004 as substantial gains in new business continued to encourage companies to hire additional workers.

Output prices set by manufacturers rose for the fourth consecutive month in October. However, the rate of inflation was the weakest in that sequence. Of those respondents that reported a rise in factory gate prices, many linked this to rising input costs. Meanwhile, competitive pressures continued to restrict the ability of some firms to raise their prices charged.

Average input costs faced by Chinese manufacturers rose at the weakest rate in the current four-month period of inflation. Panelists cited that rising demand on global commodity markets continued to generate marked inflationary pressure. Coal, cotton, crude oil and steel were all reported to have risen in price during October.

Commenting on the China Manufacturing PMI survey, Hongbin Qu, chief economist for China at HSBC, said: “The HSBC China Manufacturing PMI climbed to 55.4 in October, the highest level since April 2008, which is attributable to the sustained expansion in new orders and output, as well as rising employment. The New Export Orders Index remained above the neutral 50.0 threshold for the fifth consecutive month, implying that further improvements in exports have strengthened industrial sectors. We believe the ongoing strong recovery in the manufacturing sector should gain further momentum in the coming months, hence underpinning strong economic growth in the fourth quarter of 2009.”