x Abu Dhabi, UAE Thursday 20 July 2017

Chinese economy starts to hit lean burn once more

The Chinese dragon is starting to breath fire again as new data signals the world's second-largest economy is powering up.

The Chinese dragon is starting to breath fire again as new data signals the world's second-largest economy is powering up.

Manufacturing activity in China hit a 13-month high last month and HSBC said yesterday its purchasing managers' index (PMI) hit 50.5 last month, up from 49.5 in October, putting it above the 50 mark that indicates growth.

"This confirms the Chinese economy continues to recover gradually," said Qu Hongbin, an economist in Hong Kong with HSBC.

The figure is a strong indication of a return to growth after 12 consecutive months of contraction as the crucial manufacturing sector has been hit by a global slowdown as well as the debt crisis in Europe, one of its key markets. It is the highest reading since October last year, according to HSBC data, compiled by the information services provider Markit.

China's official PMI reading also showed expansion last month for the second month in a row, hitting 50.6, compared with 50.2 in October and 49.8 in September.

And the future is looking rosy, too. "Next year the economic outlook will be better, especially with the coming of the Chinese New Year when demand will increase," said Tang Jianwei, an economist in Shanghai for Bank of Communications. "We will likely see steady improvement in PMI in the next few months."

China's economic growth hit a more than three-year low of 7.4 per cent in the third quarter from July to September. But recent data has fuelled optimism the worst is over. Exports, industrial production, retail sales and fixed asset investment - a key gauge of infrastructure spending - have all shown improvement.

Wen Jiabao, the outgoing premier, and Chen Deming, the commerce minister, have both said they expected China to achieve its targeted growth rate of 7.5 per cent this year despite the impact of the global slowdown.

A goal of 7.5 per cent next year would signal that the country's new leaders are prepared to expand fiscal and monetary easing should China's nascent economic recovery falter.

"This will send a clear message that they want to ensure stable economic growth," said Li Miaoxian, an economist in Beijing with Bocom International Holdings, the investment banking unit of Bank of Communications. "Seven per cent would be too low because it will make the market worry."

But Citigroup and JPMorgan Chase estimate Mr Wen, in his final work report to parliament, will announce a target for next year of 7 per cent. "It will be a clear signal to the local governments that the new Chinese leaders want more quality in growth instead of just a high growth rate," said Zhu Haibin, the chief China economist at JPMorgan in Hong Kong.

Some analysts said the encouraging manufacturing figures were in large part due to China's moves to boost the sector.

"The improving numbers are mostly because of government investment," said Dong Xian'an, an economist with Peking First Advisory, about the official numbers.

Analyst said overall, however, the recovery should be sustainable.

"It's not just an indicator or two, it's really across the board tweaking up slightly and I think that is good news for pretty much everybody," David Carbon, the chief economist at DBS Bank in Singapore, told the BBC yesterday.

* compiled from AFP and Bloomberg News