China January Manufacturing Surveys Give Mixed Signals

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February 1, 2013 9:01 PM EST

The data on China's manufacturing activity reported by two different agencies Friday gave mixed signals regarding the factory output growth in the world’s second-largest economy.

Chinese manufacturing activity expanded at a slower rate in January and missed the analysts’ forecast, according to the data released Friday by China’s National Bureau of Statistics and the China Federation of Logistics and Purchasing.  But the survey by HSBC-Markit showed robust growth in factory output in the month, beating the analysts’ estimates.  

The official data on the Purchasing Managers' Index (PMI) in the manufacturing sector showed that the index fell to 50.40 in January, from 50.60 in the previous month. Significantly, the index remained in the expansion zone for the fourth consecutive month, a reading above 50. The expansion of the manufacturing activity should allay the fears of a sharp retardation of the Chinese economy.

Analysts had expected that the country’s manufacturing PMI would rise to 50.90 in January.

The data showed that both the sub-indices for new orders and raw material inventories went up in January from those in the previous month, reflecting an upward momentum in demand and corporate confidence. However, sub-indices for export orders moderated, pointing towards a volatile recovery.

“Things look a little shaky. ... Indeed, the economy has yet to generate the type of self-perpetuating growth that is needed to put the recovery on a comfortable footing,” said IHS Global Insight economists Xianfang Ren and Alistair Thornton, the Market Watch reported.

According to the HSBC Purchasing Managers’ Index released Friday, China's manufacturing activity expanded to 52.3 in January, from the previous month’s 51.9, topping the analysts’ estimate of 52.10. The data indicate that the world’s second-largest economy is reviving its growth momentum.

The HSBC survey said that new orders rose for the fourth consecutive month in January and at a solid pace that was the sharpest in two years.  The prices of raw materials increased, raising the input inflation while output costs saw moderate increase during the period.  

“A higher reading of January final manufacturing PMI implies that China’s manufacturing activity is gaining further steam on the back of improving domestic conditions. We see increasing signals of a sustained growth recovery in the coming months: the steady investment growth led by infrastructure projects, the improving labor market conditions boosting consumer spending, and the ongoing re-stocking process to lift production growth,” said Hongbin Qu, chief economist, China & Co-Head of Asian Economic Research at HSBC.

Both the surveys, though differ in the degree of growth, indicate expansion in the Chinese economy. The difference in the trend by the surveys can be linked to the variation in the sample size. HSBC China report on manufacturing is based on data compiled from responses of over 400 manufacturing companies while the official Chinese PMI is based on the response from about 3,000 firms.

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