China Manufacturing Expands a Fifth Month, PMI Shows (Update3)

By Bloomberg News


Aug. 1 (Bloomberg) -- China’s manufacturing expanded for a fifth month as record lending and a 4 trillion yuan ($586 billion) stimulus plan drove a recovery in the world’s fastest- growing major economy.

The official Purchasing Managers’ Index rose to a seasonally adjusted 53.3 in July from 53.2 in June, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

China’s stimulus spending and subsidies for consumer purchases have countered a collapse in exports and helped companies from chipmaker Semiconductor Manufacturing International Corp. to automaker General Motors Co. The nation’s policy makers will take their cue from the U.S. on when to end economic rescue efforts, central bank Governor Zhou Xiaochuan said July 28 in Washington.

“The recovery is very strong,” said Wang Tao, an economist with UBS AG in Beijing. “But it’s not yet stable, because it’s all stimulus driven.”

An export-order index rose to 52.1 in July from 51.4 in June, the PMI showed. The output index increased to 57.3 from 57.1. A measure of new orders was unchanged at 55.5.

China’s economic growth accelerated in the second quarter, gaining 7.9 percent from a year earlier. The manufacturing index has climbed from a record low of 38.8 in November.

Bad Loans, Asset Bubbles

The economy “will keep rebounding as domestic demand accelerates,” Zhang Liqun, an economist at the State Council Development and Research Center, said in today’s statement.

Banks extended $1 trillion of new loans in the first half, triple the amount a year earlier, stoking concern that the recovery may come at a cost of bad loans, bubbles in stocks and property and resurgent inflation.

The CSI 300 Index of stocks, up 87 percent this year, plunged the most in eight months on July 29 on investors’ concern that the central bank will tighten monetary policy.

Stimulus measures helped an estimated increase of more than 70 percent in General Motors’ vehicle sales in China in July from a year earlier. The factories of Semiconductor Manufacturing, China’s biggest chipmaker, will be more fully used this quarter than in the previous three months as demand improves, the company said July 29.

‘Blind Investment’

“While the recovery in manufacturing attests to the overall effectiveness of China’s stimulus, some uncertainties remain,” said Jing Ulrich, Hong Kong-based chairwoman of China equities at JPMorgan Chase & Co. She cited a government warning last month that “blind investment” is adding to overcapacity in some industries.

In November, Premier Wen Jiabao rolled out the spending package spanning earthquake reconstruction work, the construction of power grids, railways and low-cost homes, and subsidies for farmers’ purchases of televisions and minivans.

The nation that’s the world’s second-biggest exporter reported its slowest economic growth in almost a decade in the first quarter after global trade collapsed. China’s exports started to slide in November and shrank 21.8 percent by value in the first half of 2009 from a year earlier.

In Guangdong, a manufacturing hub on the nation’s east coast, exports are recovering, the official Xinhua News Agency said July 20, citing the provincial trade bureau. They may return to growth in the fourth quarter, the bureau said.

Wang, the economist from UBS, said she expects the same for the exports of the nation as a whole as global demand recovers. South Korea reported today that its exports fell for a ninth month in July from a year earlier.