China Signals Robust Growth as Factory Gauge Hits Five-Year High

(Bloomberg) -- China’s official factory gauge rose to a five-year high, signaling that efforts to clean up the financial sector and the environment aren’t damping economic growth yet.

Key Points

• The manufacturing purchasing managers index rose to 52.4 in September, compared with a projected 51.6 in Bloomberg’s survey and 51.7 in August
• The non-manufacturing PMI stood at 55.4 compared with 53.4 a month earlier
• A private-sector gauge, the Caixin manufacturing PMI, slipped to 51.0 from 51.6
• For both, numbers higher than 50 indicate improving conditions

Big Picture

The world’s second-largest economy has shown signs of cooling after posting faster-than-expected expansion of 6.9 percent in both of the first two quarters of the year. The impact of a government drive to cut excess capacity in sectors such as steel and shut polluting industries is being felt in the second half, and may color discussion of economic policy at the Communist Party Congress from Oct. 18.

Economist Takeaways

“This showed that China’s growth engine is still strong despite the cooling economic activity we saw in July and August,” said Wen Bin, an economist at China Minsheng Banking Corp. in Beijing. “As an early indicator, the PMI readings should show that economic restructuring is making positive impact.”

“It is not the first time that the NBS and Caixin readings have diverged, as the two have different samples,” said Liu Xuezhi, an analyst at Bank of Communications Co. in Shanghai. “Caixin gives more weight to small and medium-sized businesses. From the NBS sub-indicators, we can also see that the smaller manufacturers, though also improving a bit, lagged behind the large and medium-sized peers. So both readings indicated that we still need to pay more attention to the private sector, especially the smaller players.”

The Details

• New growth drivers such as high-end manufacturing are gaining momentum, the National Bureau of Statistics said in a statement
• Consumption manufacturing being boosted ahead of week-long Autumn holidays in early October, NBS said
• PMI for large manufacturers rose to 53.8, up 1 percentage point from August, and PMI for smaller producers climbed 0.3 percentage point to 49.4 from August, NBS said
• The new orders index jumped to 54.8 in September from 53.1 in August