China Factory Gauge Unexpectedly Rises as Global Demand Firms Up

China’s official factory gauge unexpectedly increased to near a five-year high, as foreign and domestic demand helped cushion the effects of parallel campaigns to clean up the environment and the financial system.

Key Points

The manufacturing purchasing managers index rose to 51.8 in November, compared with the 51.4 forecast in a Bloomberg survey of economists and 51.6 the previous month
The non-manufacturing PMI climbed to 54.8 from 54.3 in October, the National Bureau of Statistics said on Thursday
Numbers higher than 50 indicate improving conditions

Big Picture

Both overseas and domestic consumers are snapping up products from China’s factories as global demand remains buoyant, and that’s sustaining producer inflation and boosting corporate profitability. That solid demand has offered a buffer for economic growth for now, as shut-downs of polluting factories and an accelerated efforts to curb risky borrowing and cool the property sector feed through the economy.

Economist Takeaways

“The cyclical slowdown that everyone expected hasn’t shown up yet,” said Zhou Hao, an economist at Commerzbank AG in Singapore and the only analyst in Bloomberg’s survey to accurately forecast the manufacturing PMI. Such strong performance will put pressure on the bond market, he said, adding that “inflation will continue into at least early next year.”

“After a holiday wobble in October, manufacturers fired up again in November, boosting output,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “Improving new orders also suggest that activity will remain relatively firm into year-end, easing worries that tighter environmental and financial policies would throttle output.”

“The decent PMI today is due to strong output and upbeat new orders,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group in Hong Kong. “Growth momentum is not entirely supply-side pushed but also demand-side pull.”

Bloomberg Economics

“China faces a moderate slowdown into 2018, driven by slowing real estate and tighter credit conditions,” Bloomberg Economics researchers Tom Orlik and Fielding Chen wrote in a report. “So far though, the economy remains in a sweet spot — with policy makers facing little trade-off between the conflicting objectives of growth and deleveraging.”
Source: Bloomberg

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