China's manufacturing hits 20-month high

Beijing : China's manufacturing expanded at the fastest pace in 20 months in December, cementing the recovery in the world's third biggest economy.

The Purchasing Managers Index climbed to a seasonally adjusted 56.6, the Federation of Logistics and Purchasing said yesterday in an e-mailed statement in Beijing. That compares with 55.2 in November and the median 55.4 estimate in a Bloomberg News survey of seven economists.

The boost to Chinese manufacturing from subsidies for home-appliance purchases and tax rebates for exporters will continue this year as the government extends policies to counter the financial crisis. China's growth will accelerate to 8.8 per cent in 2010, four times faster than the US, as the world economy expands 2.4 per cent, the United Nations forecast last month.

"Manufacturing will stay at a high level as industrial production quickens and companies receive more orders for New Year holiday sales," Lu Zhengwei, an economist at Industrial Bank Co in Shanghai, said before Friday's data. "Exports may return to growth in December, aiding manufacturing growth."

Industrial production grew in November at the fastest pace since March 2008, exports dropped the least in 13 months and imports surged.

Purchasing prices

Friday's figure compares with a record-low 38.8 in November 2008, when recessions in the US, Europe and Japan sent export orders plunging. A reading above 50 indicates an expansion.

A measure of new export orders fell to 52.6 in December from 53.6 in November and a gauge of purchasing prices increased to 66.7 from 63.4, according to the statement.

"Attention should be focused on the drop in the export-order index, which shows there shouldn't be premature optimism about an improvement in international markets," Zhang Liqun, a researcher at the State Council Development and Research Center, said. "The rise in the purchasing price index shows that production costs for companies are increasing."

Profits

China and Asia are leading the world recovery, helping to boost global confidence, which held near a record high in Dec-ember, according to a Bloomberg survey of users of six continents, first conducted two years ago. China may overtake Japan as the world's second-biggest economy this year.

Profits are climbing as the economy gathers pace. Beijing Automotive Industry Holding Co, the company which is buying technology from General Motors Corp's Saab unit, said on December 23 that 11-month net income more than tripled. China Gas Holdings's profit in the six months ended September jumped nearly six-fold.

Premier Wen Jiabao said December 27 that China won't make the mistake of ending stimulus policies too soon, even as he signalled that the government may cool new lending that reached an unprecedented $1.3 trillion (Dh4.77 trillion) in the first 11 months of last year. Wen also said China will "absolutely not yield" to pressure from foreign countries for currency gains as the nation holds the yuan at about 6.83 per dollar.

Commerce Minister Chen Deming pledged on December 24 to maintain export tax rebates in 2010 because of a slow recovery in global demand. Also aiding manufacturers, a programme of subsidies for purchases of appliances such as refrigerators and washing machines in rural China will be expanded by raising price caps to make more products eligible.

China's economic growth in the fourth quarter probably topped the third-quarter's 8.9 per cent, Xu Xianchun, deputy head of the statistics bureau said last month. Gross domestic product probably expanded 8.5 per cent in 2009 and may grow 9.4 per cent in 2010, according to a Bloomberg News survey of economists.

The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives.

"The forward-looking components of the PMI indicate continued expansion in both domestic and external demand," said Jing Ulrich, Hong Kong-based chairwoman of China equities and commodities at JPMorgan Chase & Co. "We expect China's strong economic growth momentum to continue in 2010."