China January PMIs signal mild recovery in place

BEIJING (Reuters): China’s giant manufacturing sector extended its mild recovery in January with weak foreign demand still crimping growth, a pair of surveys showed; underscoring that the country’s rebound from its worst downturn in 13 years remains modest.

Two separate versions of the purchasing managers’ index (PMI) released on Friday showed factory output in the world’s second-largest economy rose in January, but at starkly different speeds suggesting a patchy revival in activity.

An official PMI compiled by the government showed factory sector growth was slower-than-expected in January, with the index rising to 50.4, below market forecasts for a nine-month high outcome of 50.9 and a touch below December’s 50.6.

A private PMI survey released by HSBC, on the other hand, showed growth among manufacturers quickening to a two-year high of 52.3 in January, better than the flash, or preliminary, reading of 51.9, as domestic demand aided business.

“January’s PMI does raise some red flags about the state of the economy,” said Alistair Thornton, an economist at IHS Global Insight in Beijing. “Things look a little shaky.”

The official and HSBC PMI surveys on China often do not move in tandem due to their different sampling methods. The official PMI favours big state factories while the HSBC PMI favours smaller private manufacturers.

Both surveys showed manufacturers were helped by firm domestic demand, but buffeted by lacklustre foreign demand as shoppers in the United States and Europe, the two biggest buyers of Chinese exports respectively, cut back spending.

The National Bureau of Statistics said the official survey showed that manufacturers focused on domestic consumption had done particularly well in January, while those levered to the electronics and shipping sectors had fared worst.  The results support expectations that the unfolding economic recovery in China is powered from home by rising state investment and resilient private consumption.

The Chinese economy posted its worst annual growth since 1999 last year at 7.8 percent. Analysts polled by Reuters last month forecast things could pick up slightly this year and next with the economy growing 8.1 percent.  The official PMI has been above the 50-point level demarcating growth or contraction from the previous month since August 2012, though its failure to break above 51 indicates that the economic expansion it signals is only moderate.

The NBS said on Friday it had expanded the sample size for the official PMI survey to 3,000 firms from the previous 820 across 31 industries from Jan. 1, without explaining the change.

It did not say if historical data would be revised with the changes, and gave no assessment of how the change might affect index readings.

But signs that the economic recovery -- albeit gentle -- was gaining strength were evident in both surveys on Friday.

The new orders sub-index in the official PMI inched up to a nine-month high of 51.6, while that for the HSBC PMI climbed to a two-year high of 53.7.

In contrast, the sub-index for export orders was more muted.

It stood at 48.5 for the official PMI and was just a shade above 50 in the HSBC survey.

“We see increasing signals of a sustained growth recovery in coming months,” said Qu Hongbin, chief China economist at HSBC.

“The steady investment growth led by infrastructure projects, improving labour market conditions boosting consumer spending, and the ongoing re-stocking process to lift production growth,” he said in a statement.

The quantity of purchases sub-index also hit a nine-month peak in the official PMI, with its rise to 53.2 another indication that the destocking process that had dragged on China’s industrial output through 2012 was over.

And in line with busier production, both surveys showed price pressures were quickly building up.

The HSBC PMI showed the input prices sub-index jumping to its highest since September 2011, while the official PMI showed the input price sub-index zooming to a 17-month high of 57.2.



Although both PMI surveys are seasonally adjusted, some analysts cautioned against reading too much into the data due to distortions from the Lunar New Year holiday, which fell in January last year and is in February this year.

“We believe the Chinese economy and its related asset markets will remain in a sweet spot in the near-term,” Ting Lu, chief China economist with Bank of America/Merrill Lynch wrote in a note to clients.