No sign of any sort of landing, soft or hard, in the Chinese economy, its more ‘full steam ahead’ after the latest surveys of the country’s huge manufacturing sector.
Despite concerns about inflation and the tightening of controls on bank lending, China’s manufacturing sector saw the fastest growth in up to eight months, according to the two leading surveys.
But rising inflation is clearly evident from both surveys.
The official Purchasing Managers Index rose to 55.2 last month, from 54.7 in October, better than forecast by analysts.
That was the best for seven months.
And the private survey from HSBC showed a rise from 54.8 to 55.3, seasonally adjusted, in November.
It was the strongest reading for eight months for the HSBC survey for new orders.
HSBC said that the pace of manufacturing production growth eased slightly in November but remained "steep" and well above the long-run average.
The new export orders index rose for the third straight month but the pace of growth remained "modest".
The input price index rose "considerably" in November to its highest level in 28 months and is now up over 36 points on its recent July low, "suggesting that price pressure are increasing rapidly".
Output prices rose at their fastest pace since the start of the China PMI series in April 2004 as manufacturers try to cover their rapidly rising raw material costs.
The measure of input costs rose to 73.5 from 69.9 in October.
The surveys also showed gains in indexes for output, new orders and export orders.
New orders might be a bit stronger, as reported because of seasonal factors.
Some analysts say there could be a slowdown in the first quarter of next year, but that it won’t be as dramatic as the headlines are saying because the comparison will be with the 19%-plus rise in first quarter output in 2010.
But while the PMIs have been improving for the past seven to eight months, Chinese industrial output has been slowly falling and hit its lowest growth in October of 13.1%.
That’s a paradox yet to be fully explained by economic data.
The government’s campaign to rein in money supply and cool prices has so far included two reserve-ratio increases for lenders last month.
Now there are fears of another rate rise in the next few days.
Don’t be surprised if a rate rise comes soon: the continuing strength of the manufacturing sector shows the economy can withstand another increase.
Japan and South Korea
surprised with stronger new orders, which could see a rebound in activity early next year.
The Nomura PMI for Japan rose slightly to 47.3 in November from 47.2, which puts it still in contraction mode.
New orders however looked a little better.
Even though industrial production fell in October, the outlook for Japan is for increases this month and next.
But Japan will go through some pain this quarter with a Bank of Japan board member warning of the possibility of negative growth, as a rising number of Tokyo analysts have suggested could happen.
Reuters reported that Bank of Japan policy board member Miyako Suda says the risk of prolonged weakness in Japan’s economy remains high, with a strong chance of a contraction in the final quarter of this year.
"There’s a strong chance the economy will contract in October-December in reaction to greater-than-expected growth in July-September.
"Financial markets are not stable as there is high uncertainty in the economy and financial situation at the moment … Considering the impact from recent yen rises and the worsening of sentiment among companies and consumers, the risk of prolonged weakness in the economy remains high," she was quoted as saying.
She also thinks the current deflation that has gripped Japan for more than a year won’t ease quickly, despite the official bank of Japan policy suggesting it will ease next year.
Markit Economics said its purchasing managers’ index for South Korea’s manufacturing sector rose to a seasonally adjusted 50.23 in November from the 20-month low of 46.75 in October.
That ended a six month fall. But industrial production fell 4.2% in October; the third monthly fall in a row and the biggest drop for two years.
South Korean inflation fell to an annual rate of 3.3% last month, from 4.1% in October, while exports rose 24.3% and imports by more than 30% in November.
Taiwan’s HSBC index rose to 51.7 in November from October’s reading of 48.6.
Is it the China factor, once again?
In Australia manufacturing activity softened in November with the Performance of Manufacturing Industry survey showing a fall of 1.8 points to 47.6, driven by falls in the basic metals and machinery and equipment subsectors.
Readings below 50 indicate a contraction in activity.
Only seven of the 12 manufacturing sub-sectors expanded in the month, according to the PMI, which was issued by the Australian Industry Group/PricewaterhouseCoopers.
The survey showed an expansion in areas such as textiles was not enough to offset falls in the other areas and new orders across manufacturing continued to weaken in the month.
"A rise in new orders was largely behind the strong result in the paper, printing and publishing sub-sector," the survey said.
"This increase, together with the positive contributions from other sub-sectors experiencing growth in the month, was not enough to lift the manufacturing sector into the black
