China factory output grows fastest since '08

China’s manufacturing expanded at the fastest pace in 17 months in September on stimulus spending and this year’s record growth in new loans.

The Purchasing Managers’ Index rose to a seasonally adjusted 54.3 from 54.0 in August, the Federation of Logistics and Purchasing said today in an e-mailed statement in Beijing. The latest number was lower than the median estimate of 55 in a Bloomberg News survey of 13 economists. A reading above 50 indicates an expansion.

China, which is marking 60 years of Communist Party rule today, has pledged to maintain stimulus policies to create jobs, maintain social stability and strengthen the recovery of the world’s fastest-growing major economy. A manufacturing index released by HSBC Holdings Plc yesterday also showed an expansion in September as a 4 trillion yuan ($586 billion) stimulus package countered a slump in exports.

“Manufacturing is likely to keep climbing steadily as investment, production and retail sales all rebound further and exports bottom out,” said Lu Zhengwei, an economist at Industrial Bank Co in Shanghai. Lu estimates China’s economy may grow 9 per cent this quarter, up from 7.9 per cent in the previous three months.

China’s stock markets were closed today for a public holiday.

Today’s manufacturing figure compares with a record-low 38.8 in November, when recessions in the US, Europe and Japan sent export orders plunging and Premier Wen Jiabao’s stimulus package was yet to kick in. China’s economic growth will keep strengthening for the rest of 2009, according to a Bloomberg News survey of economists in August.

An output index rose to 58.0 in September from 57.9 in August, a measure of new orders climbed to 56.8 from 56.3, and an export-order index increased to 53.3 from 52.1, according to today’s statement.

An index of employment index rose to 53.2, the highest level since April 2008, from 51.4. Fifteen out of the 20 industries surveyed by the agency showed expansion in September.

“China’s economy will continue to rebound, and with the relatively fast recovery in employment and incomes, that rebound is sustainable,” Zhang Liqun, a researcher at the State Council Development and Research Center, said in today’s statement.

Zhang cautioned that policy makers must focus on preserving growth as China’s economic rebound was not solid and the recovery was still mainly driven by government stimulus rather than consumption.

China’s industrial output rose the most in a year in August as passenger-car sales almost doubled on tax cuts and government subsidies. Local truck-maker Anhui Jianghuai Automobile Co said this week that it plans a venture with Caterpillar Inc. and Navistar International Corp to boost production and tap demand in the world’s fastest-growing major vehicle market.

Industrial overcapacity and a 10-month slump in exports are drags on the nation’s recovery.

China’s State Council, or cabinet, announced on September 29 a ban on building aluminum smelters and coking projects for three years and a temporary halt on new cement projects. It also said the steel industry shouldn’t expand, without specifying a period.

The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries. It began in January 2005.