4 August 2009

China's manufacturing gets a boost in July

China's manufacturing expanded in July at its fastest rate in a year as domestic demand offset sluggish exports. This survey showed how much Beijing's stimulus plan is helping drive China's growth.

Hong Kong brokerage CLSA Asia-Pacific Markets said its monthly purchasing managers index, or PMI, rose to a 12-month high of 52.8 on a 100-point scale where numbers above 100 indicate an expansion. That was up from June’s 51.8.

“Manufacturing activity continues to accelerate, and importantly, orders growth is being driven by the domestic economy,” said CLSA economist Eric Fishwick. “Export prices lag, another sign of China looking inwards for growth.”

The survey echoed a report Saturday by the state-sanctioned China Federation of Logistics & Purchasing that showed manufacturing expanding for a fifth month following the plunge in global demand for Chinese goods.

China’s economic growth accelerated in the latest quarter to 7.9 over a year earlier, up from 6.1 the previous quarter, as Beijing’s $586 billion (4 trillion yuan) stimulus pumped money into the economy.

China’s biggest gains came in construction and other areas targeted by Beijing’s effort to pump up domestic demand with a massive program of building new highways and other public works. Consumer spending and other private sector activity are lagging.

Economists see the PMI as a better measure of China’s economic outlook than data such as gross domestic product because it includes forward-looking elements such as orders for future sales. CLSA’s index comes from on a monthly survey of some 400 companies, while the Chinese federation surveys some 700 companies.

CLSA said its measure of manufacturing output rose to 54.6 from June’s 53.7. The index of new orders rose to 55.9 from June’s 54.6 even though the measure of export orders dropped to 50.2 from June’s 50.9.

The employment indicator rose to 51.0 from June’s 50.2, indicating that creation of new jobs was lagging.

“Demand for manufactured goods was reported to have centered on the domestic market,” the CLSA report said, while the global slump “was still having a negative impact upon export sales.”

For related information, go to www.isa.org/productivity.