Manufacturing strengthened from China to South Korea last month in a sign that growth risks are abating in Asia and expansion may pick up this quarter.
China’s official manufacturing Purchasing Managers’ Index (CPMINMAN) rose more than estimated to an 18-month high and a measure from HSBC Holdings Plc and Markit Economics topped projections. HSBC’s reading for South Korea was above the expansion-contraction dividing line of 50 for the first time since May and Taiwan’s PMI rose to 53 from 52. Australian and U.K. indexes also showed growth.
Asian economies are benefiting from a demand pickup aided by the U.S. Federal Reserve’s extension of monetary stimulus even as global risks remain from budgetary wrangling in Washington. A sustained recovery in China, the world’s second-biggest economy, may give the government more room to implement reforms the World Bank has said are critical for the nation to become a high-income nation.
“The Asia momentum is part of a global recovery story,” said Xie Dongming, a Singapore-based economist with Oversea-Chinese Banking Corp. While the recovery “may last longer than expected” due to improved fundamentals in the U.S. and Europe, it’s still subject to changes in demand in those areas and Japan, Xie said.
The MSCI Asia Pacific Index of stocks fell 0.5 percent as speculation the Federal Reserve will reduce stimulus in coming months overshadowed the manufacturing data. China’s benchmark Shanghai Composite Index rose 0.4 percent to finish the week up 0.8 percent, the first gain in three weeks.
China’s official PMI was at 51.4, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compares with 51.1 in September and the 51.2 median estimate in a Bloomberg News survey of analysts. The gauge from HSBC and Markit rose to 50.9 from 50.2, matching a preliminary reading and exceeding the 50.7 median estimate in a Bloomberg survey.
“That confirms that economic activity continues to expand following the rebound in the third quarter” and that the government’s full-year target of 7.5 percent growth is “within reach,” Ding Shuang, Citigroup Inc. senior economist in Hong Kong, said on Bloomberg Television. The PMI’s subindexes, by comparison, raise questions about “how sustainable the growth rebound will be.”
Zhang Liqun, an economist with the Development Research Center of the State Council, said in the logistics federation’s statement today that the official PMI report points to China’s expansion stabilizing at about 7.5 percent, yet the foundation of growth is “not solid.”
The decline in gauges of finished-goods inventories and input prices showed that companies are “still relatively cautious about market prospects,” Zhang said.
The better-than-estimated data may bolster confidence among top Communist Party officials who meet in Beijing next week to map out how to cut red tape, push forward tax and financial changes, and spur a shift toward a consumption-driven economy.
A Markit manufacturing PMI for Japan yesterday showed an increase to 54.2 in October from 52.5. Vietnam’s PMI from HSBC and Markit was unchanged at 51.5, data today showed.
The official China PMI was above the estimates of 24 of 31 economists in the Bloomberg News survey. The output index was also the highest in 18 months. A gauge of export orders was above 50 for a third month, while a new orders index fell to 52.5 from 52.8, which was the highest since April 2012.
Chang Jian, China economist at Barclays Plc in Hong Kong, said in a note that the new orders gauge “points to softening demand and growth momentum.”
The number of companies in the official China manufacturing survey increased earlier this year to 3,000 from 820. The HSBC survey is based on responses from purchasing managers at more than 420 businesses, and is weighted toward smaller private companies.
HSBC’s China index was the highest since March. Output showed the fastest growth in six months and a gauge of new orders was the highest since March. Backlogs of work rose at the quickest pace since March 2011, HSBC said.
Consumer-focused companies are benefiting from the upturn. German automaker Volkswagen AG (VOW) this week posted third-quarter operating profit that beat estimates, with nine-month deliveries in China rising 18 percent.
Elsewhere, Markit’s PMI gauge for the U.K. was 56 in October, compared with 56.3 in September. The measure for Norway showed a pickup in growth while Switzerland, Sweden and Denmark showed slower expansion.
In the U.S., factory growth also cooled in October, economists said before a report later today. The Institute for Supply Management’s gauge declined to 55 from a more than two-year high of 56.2 in September, according to the Bloomberg survey median.
China’s GDP will increase 7.6 percent this year, according to the median estimate of 52 economists surveyed by Bloomberg last month. That’s the same pace as 1999, which was the weakest expansion since 1990. Growth may slide to 7.4 percent in 2014, according to the median projection of 47 analysts.
China’s top leadership, led by president and Communist Party chief Xi Jinping, will hold a four-day meeting, known as the Third Plenum, starting Nov. 9, to discuss and set a blueprint for social and economic reforms to meet the party’s goal of doubling per capita income in the decade through 2020.
In a report last year titled China 2030, the World Bank and Development Research Center warned that the nation’s growth model isn’t sustainable and put forward policy changes that would help avoid the middle-income trap, a situation where a country’s productivity and income growth stalls as it loses competitiveness and fails to upgrade its economy.
--Nerys Avery. With assistance from Zhou Xin, Stephen Tan, Regina Tan and Stephen Engle in Beijing and Ailing Tan in Singapore. Editors: Nerys Avery, Scott Lanman
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