China's factories weather global economic storm

Manufacturing activities in China's large state-owned factories continued to expand in January while those of private manufacturers remained in decline, separate surveys showed on Feb 02,2012 .

Overall, the results were better than expected and indicated a stabilizing pace amid sluggish growth around the world, according to analysts.

The official Purchasing Managers' Index, a gauge of manufacturing activities weighted toward large state-owned enterprises, sat at 50.5 in January, up 0.2 points from a month earlier, the China Federation of Logistics and Purchasing said.

In contrast, the HSBC China Manufacturing Purchasing Managers' Index, which is slanted more toward private and export-oriented companies, remained below 50 in January at 48.8, although it edged up a little from December's 48.7.

In both surveys, a reading above 50 points to expansion and below, contraction.

"The rebound for a second month in the official PMI shows China's economy is stabilizing," said Zhang Liqun, an analyst appointed by the federation. "The improvement in new orders reflects a recovery in factory conditions thanks to healthy domestic demand."

Component indices showed that new orders rose 0.6 points from a month ago to 50.4, while production upped 0.2 points to 53.6.

Trade was still weak with new export orders losing 1.7 points to 46.9 and imports down 2.2 points to 46.9.

Chang Jian, a Barclays Capital economist, said the official PMI increase should be interpreted with more optimism because it defied the usual seasonal decline in the month of the Chinese New Year.

"In our view, the upside surprise also suggests the stronger-than-expected momentum seen in the December data is not temporary or driven solely by seasonal factors," Chang said. "It mirrors the impact of earlier selective monetary easing and proactive fiscal policy, and hence, could be sustained."

Meanwhile, the Bulk Commodity Index improved to 0.2 in January from minus 0.19 a month earlier, indicating that China's manufacturing sector was improving, albeit at a slow pace.

The newly launched index, compiled by Chinese commodity data provider 100ppi.com, covers prices of basic raw materials and is on a scale of minus 1 to 1. A reading above zero indicates manufacturing expansion.

Qu Hongbin, chief economist for China at HSBC, said: "Given that inflation is no longer a concern, China should launch more supportive policies for smaller manufacturers."

He said that, once it filtered through, policy easing should ensure a soft-landing this year for China's economy.

"But the first quarter is likely to be tough, with gross domestic product to be around 8 percent," Qu said.

China's economic growth stood at an annualized 9.2 percent last year, compared with 10.4 percent in 2010. But the pace moderated to 8.9 percent in the final quarter of 2011, the slowest pace in two and a half years.

Last week, the International Monetary Fund warned of a global economic recession that could threaten emerging markets. It cut China's growth forecast to 8.2 percent for this year, down from a previous projection of 9 percent.

Meanwhile, the federation and the National Bureau of Statistics said the sample size for measuring official PMI will be gradually increased from the 820 companies at present to around 3,000.