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PMI growth shows business confidence constantly improving, according to Caixin survey
Manufacturing activity expanded in China for the sixth month in a row in October amid a sharp resurgence in business confidence, a private survey showed on Monday.
Caixin China’s General Manufacturing Purchasing Managers Index stood at 53.6 in October compared to 53.0 in September. It was also the highest reading since January 2011, according to survey data released by media group Caixin and information provider IHS Markit. A PMI reading above 50 reflects economic expansion, while one below 50 indicates a contraction.
Caixin’s Manufacturing PMI, which surveys more small and medium-sized enterprises and export-oriented companies located in the eastern coastal regions, posted growth in October against expectations of a market moderation. The current reading, coupled with previously released still-strong official PMIs, suggests that China’s growth recovery stayed on track last month, Lu Ting, Nomura’s chief China economist and other experts, said in a note from investigation.
Manufacturing supply and demand were active as the fallout from the COVID-19 pandemic gradually faded. The sub-index of total new orders rose sharply in expansionary territory, reaching the highest level since November 2010.
Companies continued to increase purchases and their raw material inventories grew in response to rapid growth in orders. In October, the purchase quantity index reached the second highest level in more than seven years, according to the survey.
“The increase in Caixin’s manufacturing PMI in October was widespread, but led mainly by the sub-indices of new orders and purchase inventories, which increased to 57.0 and 52.1, respectively, in October from 55.5 and 51.3 in September. This, together with the The drop in the New Export Orders sub-index suggests that domestic demand may have played a key role in driving the recovery among SMEs in October, “Lu said in the note.
The Fifth Plenary Session of the XIX Central Committee of the Communist Party of China, which concluded on Thursday, proposed important social and economic development goals for the period of the XIV Five-Year Plan (2021-25). The domestic market will be strengthened, the economic structure will be further improved and innovation capacity will be significantly strengthened, said a statement released after the session.
Market entities will show more vitality and significant progress will be made in property rights reform and reform to promote market-based factor allocation of production, he said.
Wang Zhe, a senior economist at Caixin Insight Group, said recovery was the keyword for the macroeconomy, as the domestic epidemic is largely under control.
“As the economic indicators for consumption, investment and industrial production for September were generally better than expected, it is very likely that the economic recovery will continue in the coming months. But there are still many uncertainties outside of China, so policy makers they should be careful about normalizing post-coronavirus monetary and fiscal policies, “said Wang.
He said the twists and turns of overseas infections remained a barrier to exports. The survey revealed that, although the measure for new export orders remained in expansionary territory in October for the third consecutive month, foreign demand recovered at a much slower pace than in September.
This is likely due to the re-implementation of lockdown measures in Europe and the US amid new waves of COVID-19 infections, HSBC economist Chen Jingyang said.
“Looking ahead, while increased domestic consumption may continue to support manufacturing, uncertainties abroad from COVID-19 infections remain a threat to exports and overall growth,” Chen said in a report.
Also, despite a steady market recovery, many companies did not add staff in an effort to keep costs under control. This means that the recovery of employment must remain one of the top political priorities, as it is essential for the sustained growth of household consumption and the service sector in general, he said.
