Uncertainties linger in China's strong manufacturing rebound

08:25, December 03, 2010      

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The strong performance of China's manufacturing sector reflects a better economic climate. However, a close look at the figures shows that cautious confidence is necessary, according an analysis of People's Daily on Thursday.

China Federation of Logistics and Purchasing (CFLP) released the Purchasing Managers Index (PMI) of China's manufacturing sector on Wednesday, which rose to 55.2 percent in November. That marks a rise of 0.5 percentage points from October and a new high in seven months after a rebound for four months since October. It is also the 21st straight month that the index has remained above 50 percent, implying an economic expansion.

Reuters reported on Thursday that the robust figures of the Chinese PMI and the U.S. employment buoyed the New York crude prices and the European stock market on Wednesday.

Among the 11 sub-indices that make up the PMI, only four went down compared to October, including the indices of the amount of purchasing, imports, employment and suppliers’ delivery time. The import index was down by 2.2 percentage points to 50.6 percent, while the decline in the other three was all below 1 percentage points.

However, in People's Daily report, some experts and industry insiders expressed their concern over the looming risk behind the bright figure. Zhang Liqun, a researcher at the State Council's Development Research Center, has noticed the different momentum of changes between the PMI and the growth of industrial output and GDP in recent months.

"Generally, the export, investment and consumption are all likely to slow down in the future. The economic situation is very complicated currently and has considerable uncertainties in its future development," he warned.

Cai Jin, vice president of the federation, pointed out two things which deserved special attention about the PMI figure. First, the production index for November was 58.5 percent, up by 1.4 percentage points over October.

He thinks that reflects the robust growth of orders, which led to active purchase and the capacity expansion boosted by price hikes. When the demand and supply has reached basic balance, more supply will help curb the inflation.

However, he warned that enterprises could be motivated to expand their capacity blindly. Large state-owned enterprises should base their decision on correct assessment of the situation. Price hikes may send a misleading message to them and higher supply as a result of capacity expansion will lead to imbalanced demand and supply.

Second, price hikes played a big role in pushing the PMI up. The purchasing price index soared to 73.5 percent in November from 50.4 percent in July after four months of consecutive rise.

But the increase in prices was not caused by any imbalance in demand and supply. In Cai's analysis, the inventory index of grain and agricultural products, of which robust price inflation was seen, reached as high as 56.3 percent in November. That means there is no problem in supply, which in turn means supply is not to blame for higher prices.

China Logistics Information Center also warned in its report on Wednesday of the increasing uncertainties in China's economy. The PMI at least can tell us four things in the economy.

First, demand is stable and production is up. The index of new orders was 58.3 percent in November, a slight climb of 0.1 percentage points over October. Generally the figure for the whole year has been going up despite some fluctuations and is standing at a high level now. That reflects a brisk domestic market. The production index was 58.5 percent in November, up by 1.4 percentage points from October, implying a steady growth in industrial production.

Exports have remained stable with slight expansion. In November, the index of new export orders was 53.2 percent, 0.6 percentage points higher than October. The index of 11 sectors stood above 50 percent but the index of nine sectors, such as textiles, was below 50 percent.

An analyst at the center thinks that it shows a big structural disparity in the export of China's manufacturing sector. The industry as a whole has yet to wait for a real rebound and faces many uncertainties in export.

The import index dropped in November after an evident climb in September and October. Imports are expected to remain flat or even decline in the next two to three months due to the impact of the stabilizing domestic demand and volatile prices on the international market.

The rising prices are putting upward pressure on inflation. The index of purchasing prices was high. The indices of the 20 sectors all exceeded 50 percent, with 15 of them even above 70 percent. The indices of oil refinery and coking even reached more than 80 percent.

By Li Jia, People's Daily Online


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