China’s manufacturing sector showed signs of recovery on Wednesday as an HSBC survey provided fresh evidence that the worst may be over for the world’s number two economy.
The preliminary purchasing mangers’ index (PMI) released by the British banking giant hit 49.1 this month, the highest level in three months and up from 47.9 in September.
A reading above 50 indicates growth and anything below points to shrinkage.
While the figure marks the 12th straight month of contraction, it is also the second consecutive monthly improvement and adds to recent indications the economy is on the mend after a slowdown stretching back to last year.
They also come at an important time politically as the country prepares for a once-a-decade leadership change at a Communist Party meeting that starts on November 8.
The index, compiled by information services provider Markit and released by HSBC, tracks manufacturing activity and is a closely watched barometer of the health of the economy.
China’s official PMI figure was 49.8 for September, a second straight contraction. October’s official figures are expected on November 1, the same day HSBC will release its final result.
HSBC economists Sun Junwei and Qu Hongbin said in a report that October’s reading came as total new orders picked up to a six-month high, while new export orders had their best showing in five months.
They also noted that the PMI result “reflected the filtering through of earlier easing measures” introduced by policymakers this year to boost growth.
Those include two interest rate cuts in quick succession as well as the loosening of restrictions on how much money banks must keep on hand in an effort to boost lending.
China last week said the economy grew 7.4 percent in the three months to September, slowing for the seventh straight three-month period and its worst performance since the first quarter of 2009.
Improvements in September for exports, industrial production and retail sales spurred optimism that the worst may be over for the Asian giant, although Sun and Qu warned that problems in overseas economies and China’s job market continued to weigh.
“Growth has likely bottomed out and is headed for a gradual recovery” into the next three months, they said.
“With inflation still under control and downside risks to growth lingering, China should continue with its current easing efforts to secure a firmer growth recovery.”
China’s consumer price index slowed in September, rising 1.9 percent year-on-year, slightly down from the 2.0 percent recorded in August.
Inflation plagued China’s economy in much of 2010 and 2011, with CPI peaking in July last year at 6.5 percent.
Zhang Zhiwei, economist at Nomura International in Hong Kong, agreed that the economy is on the mend.
“Leading indexes all point to rising growth momentum,” he said in a written commentary after the initial PMI announcement by HSBC.
Zhang said he expects China’s official PMI figure to rise to 50.2 for October and the economy to accelerate to 8.4 percent year-on-year growth in the fourth quarter. -By Kelly Olsen