Amid signs of recovery, China's production rises

China’s manufacturing expanded in July as record lending and a 4 trillion yuan ($585 billion) stimulus package stoked a recovery in the world’s fastest- growing major economy. The CLSA China Purchasing Managers’ Index rose to a seasonally adjusted 52.8, the highest level in a year, from 51.8 in June, CLSA Asia-Pacific Markets said on Monday in an e-mailed statement. An official index, released August 1, also expanded.

In signs the global slump may be easing, reports on Monday showed manufacturing expanded in the UK for the first time in more than a year, shrank less than initially estimated in Europe and declined at a slower pace in Australia. China’s rebound, driven by $1 trillion of new bank loans in the first half, may help the nation overtake the US as the world’s largest manufacturer by 2015, according to forecaster IHS Global Insight.

“China is leading the way,” said Tomo Kinoshita, an economist at Nomura Holdings Inc in Hong Kong. “We can expect global production to improve gradually in the months ahead.”

The Shanghai Composite Index closed 1.5 per cent higher, taking this year’s gain to 90 per cent. The yuan ended at 6.8308 against the dollar from 6.8311 before the data’s release.

Manufacturing in the US probably shrank in July at the slowest pace in 11 months as the recession eased and factories moved closer to stabilisation, according to the median forecast of 62 economists forecast ahead of a private report on Monday. In China, the CLSA survey indicated manufacturing grew for a fourth month. The official PMI topped 50, the borderline between expansion and contraction, for a fifth month.

Chinese manufacturing “continues to accelerate and, importantly, orders growth is being driven by the domestic economy,” said Eric Fishwick, head of economic research at CLSA in Hong Kong. Overseas demand “remained lackluster,” he said.

The nation’s stimulus and credit boom have countered a collapse in trade and aided businesses from Semiconductor Manufacturing International Corp to General Motors Co Airbus SAS rolled out in June the first aircraft assembled at its China factory as the planemaker seeks more business there.

The world’s third-biggest economy expanded 7.9 per cent in the second quarter.

Output and new-order indexes climbed in the CLSA study, which also showed inflation pressures building as prices of inputs and outputs jumped. An export-order index stayed above 50 for a second month. An employment index rose for a second month.

China’s “aggressive policy response” will fuel the nation’s growth for the rest of the year, said Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong. In the UK, a gauge based on a survey of factories climbed to the highest since March 2008, the Chartered Institute of Purchasing and Supply and Markit said. An index of euro-area manufacturing rose more than initially estimated to an 11-month high, Markit Economics said.

Australian manufacturing contracted at the slowest pace since September, the Australian Industry Group and PricewaterhouseCoopers said. India’s factory output rose for a fourth month, according to Markit Economics’ Purchasing Managers’ Index.

Commodity prices may rise further in 2010 as the global recession abates, Nouriel Roubini, the New York University economist who predicted the financial crisis, said on Monday at a conference in Kalgoorlie, Western Australia.

Chinese policy makers will take their cue from the US on when to end economic rescue efforts, central bank Governor Zhou Xiaochuan said July 28 in Washington.

The explosion in credit is stoking concern that the nation’s recovery may come at the cost of bad loans, bubbles in stocks and property and resurgent inflation.

IHS Global Insight spokesman Jim Dorsey confirmed on Monday the company’s forecast for China overtaking the US as the world’s biggest manufacturer, which was published by the Wall Street Journal. Last year, the company’s estimate was for 2016 or 2017, the newspaper said.

China’s stimulus measures helped a 78 per cent increase in General Motors’ vehicle sales in the nation in July from a year earlier. Semiconductor Manufacturing, China’s biggest chipmaker, said its factories will be more fully used this quarter than in the previous three months as demand improves.