China factory growth at fastest pace in 3 months

Workers packaging aluminium tapes in China's Anhui province. The manufacturing PMI was at 51.7 last month.
Workers packaging aluminium tapes in China's Anhui province. The manufacturing PMI was at 51.7 last month.PHOTO: AGENCE FRANCE-PRESSE

Pickup buoyed by strong output and new orders, but debt risks pressure economy

BEIJING • China's manufacturing sector expanded at the quickest pace in three months last month, buoyed by strong production and new orders, reassuring news for the authorities trying to strike a balance between deleveraging and keeping the economy on an even keel.

The official manufacturing Purchasing Managers' Index (PMI) was at 51.7 last month, the eleventh straight month of expansion, and up from 51.2 in May, a monthly survey by the National Bureau of Statistics showed yesterday. It was the fastest pace since March.

The survey supports broad consensus that China's economy is stabilising at a moderate pace rather than slowing sharply, suggesting that it is on track to meet its annual growth target of 6.5 per cent for this year.

Production surged to 54.4, marking a strong one percentage point jump from May. New orders in the month also rose to 53.1 from May's 52.3, with export orders surging by 1.3 percentage points to 52.0, suggesting external demand picked up.

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Still, most China observers agree that the world's second-biggest economy will continue to cool as the authorities reduce high levels of debt across many of the heavy industries, crack down on financial risks and tighten monetary conditions.

The manufacturing PMI showed that the impetus came mostly from larger firms, while small and medium-sized industries struggled, suggesting SMEs may be bearing the brunt of deleveraging efforts.

China's small and medium-sized firms have grown so acute that many are expected to become unprofitable or even go belly up this year, boding ill for an economy running short on strong growth drivers.

Yesterday's solid PMI numbers contrasted with a raft of data in recent months that have pointed to ebbing momentum in China, which got off to a strong start to the year when first quarter growth came in at 6.9 per cent.

As policymakers tighten the screws on debt risks, companies are already facing higher financing costs, which could ripple through to decisions on investment, hiring and wages over the next year.

China's central bank will hold off on further monetary policy tightening and could even slightly loosen its grip in coming months as a deleveraging drive threatens economic growth and job creation, policy insiders said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 01, 2017, with the headline 'China factory growth at fastest pace in 3 months'. Print Edition | Subscribe