* China HSBC flash PMI rises to 50.9 (Sept 50.2)
* New orders at 7-month high, most sub-indexes up
* Policy tightening fears, weak exports cloud outlook
By Natalie Thomas
BEIJING, Oct 24 Strong new orders drove the
fastest expansion in China's manufacturing sector in seven
months in October, a preliminary survey showed on Thursday, more
evidence that the economy is stabilising although a strong
rebound remains elusive.
The flash PMI figure, the earliest reading of China's
monthly economic performance, offers some positive news after
disappointing export figures and September's manufacturing PMI,
which had shown weak domestic demand.
The Markit/HSBC Purchasing Managers Index (PMI) stood at
50.9 in October, above September's final reading of 50.2 and
marking a seven-month high. Ten of 11 sub-indices rose.
"China's growth recovery is becoming consolidated into the
fourth quarter following the bottoming out in the third quarter"
said Qu Hongbin an HSBC economist in a statement.
"This momentum is likely to continue in the coming months,
creating favourable conditions for speeding up structural
New orders rose to 51.6, the highest in seven months and
well above the 50 line separating expansion from contraction.
"From what we can see companies have drawn down inventories
now, so once you get a little bit of demand you get orders
coming in," said Stephen Green, an economist with Standard
The strong reading lifted Chinese stocks
off two-week lows, although investors are jittery about
possible policy tightening by the central bank to put a cap on
rising inflation and housing prices. Those fears have seen
short-term money rates surge this week.
GROWTH SEEN SLOWING
In the first nine months of the year, the $8.5 trillion
economy grew 7.7 percent from a year earlier, putting it on
track to achieve Beijing's 2013 target of 7.5 percent, which
would be the weakest growth in 23 years.
Still, many economists see growth slowing ahead as global
demand remains soft and as Beijing restructures the economy
towards one driven more by consumer demand than investment and
"Despite the rise of this flash PMI reading, we believe
sequential GDP growth peaked in the third quarter at 2.2 percent
and people should expect moderation to a more sustainable growth
rate of 1.8-2.0 percent in the fourth quarter," said Ting Lu and
economist with Bank of America-Merrill Lynch.
The government has repeatedly stated it will accept slower
growth during the restructuring, but policymakers have also
shown a willingness to step in to keep growth stable.
The flash PMI showed new export orders ticked up only
marginally, suggesting a stabilisation in global demand but no
Exports unexpectedly fell 0.3 percent in September, as fears
of a tapering in U.S. monetary stimulus weighed on demand from
Southeast Asia. Exports were a drag on the economy in the first
three quarters, subtracting 1.7 percentage points from growth
Policymakers stated they would support the trade sector if
it looked like missing an 8 percent growth target for this year.
Bank of America's Lu urged caution on attaching too much
significance to the flash PMI figures.
"We should keep in mind that the HSBC flash PMI is quite
volatile and the final reading could vary significantly from the
flash," said Lu.
"The HSBC PMI has a quite small sample size with undisclosed
number of missing values."
Last month's final PMI figures delivered a shock to the
markets, coming in a full point below the flash reading for
The flash PMI is based on 85-90 percent of total responses
for each month.