China's Manufacturing Activity Picks Up

Features Dow Jones Newswires

Activity in China's manufacturing sector increased robustly in September, with big factories ramping up faster than smaller ones, allaying concerns the economy might slow ahead of a pivotal Communist Party meeting.

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China's official manufacturing purchasing managers' index rose to 52.4 in September, a five-year-high, according to data released by the National Bureau of Statistics on Saturday. The reading beat market expectations of 51.5 and kept the index above the 50-mark that separates expansion from contraction for 14 months.

The statistics bureau attributed the surge to improving demand from domestic and overseas markets and to consumer-goods makers accelerating production ahead of a weeklong national holiday starting October 1. Some economists also said activity picked up thanks to production from Chinese exporters for the Christmas season and manufacturers bringing production forward to beat a government crackdown on pollution.

September's robust showing by manufacturers shows the world's second largest economy continuing to outperform as it has done for much of the year.

The better-than-expected performance wasn't uniform across manufacturers. A private gauge of factory activity, which more closely tracks smaller private companies, weakened. The Caixin China manufacturing purchasing managers' index slipped to 51.0 in September from 51.6 in August, as new orders and output increased at a softer rate than the previous month, said Caixin Media Co. and research firm Markit.

Lu Zhengwei, an economist with Industrial Bank, said that the government crackdown to curb pollution falls heavier on smaller manufacturers, which usually have poorer emissions controls, hence the divergence between the gauges.

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Beijing is imposing stricter environmental controls this year to curb air pollution ahead of the once-in-five-year political party reshuffle this October and winter when more coal is burned for heating. Many factories in northern China are expected to suspend production ahead of the key political event.

Economists and China watchers had been expecting a broad slowdown to come earlier in the year given that Beijing has been trying to rein in rising debt levels and homebuying speculation. Signs of a downturn only started to show in the third quarter after first-half growth beat analysts' forecasts.

Economic indicators, including industrial output, retail sales, foreign trade and fixed-asset investment, slowed noticeably in July and August.

In response to the cooling, the governing State Council recommended this past week that the amount of reserves big banks must set aside with the central bank should be lowered, provided they meet certain criteria on lending to small and private businesses.

Zhou Jingtong, an economist with Bank of China, said it was a good time to lower the reserve requirement for some big banks to prevent the economy from decelerating too sharply.

The better-than-expected official manufacturing data bodes well for other parts of the economy and reduces the likelihood of a big stimulus move such as an across-the-broad cut in reserve requirements. Also Beijing is still well placed to meet its 6.5% economic growth target for the year after securing a 6.9% expansion in the first six months.

Grace Zhu

(END) Dow Jones Newswires

September 30, 2017 01:37 ET (05:37 GMT)