By Kevin Brown, FT.com
(FT) -- China's manufacturers sharply increased output in October, powered largely by rising domestic demand and defying a widespread slowdown in the rest of Asia.
The official purchasing managers' index released by the China Federation of Logistics and Purchasing rose to 54.7 from 53.8 in September, indicating strong growth in spite of Beijing's efforts to slow the economy to avoid asset bubbles.
The widely watched HSBC China manufacturing PMI, also released on Monday, moved up to 54.8 from 52.9 in one of the biggest month-on-month rises since the series began in April 2004.
The PMI indices, in which a figure above 50 indicates expansion and a lower figure indicates contraction, showed that Chinese manufacturing surged in October for the third successive month.
HSBC said the rate of expansion in new business for Chinese manufacturing companies was at a six-month high, in spite of a relatively small increase in export orders, suggesting that growth was firmly centred on the domestic market.
Hongbin Qu, HSBC's chief China economist, said the upbeat numbers suggested the economy would grow at an annualised rate of around 9 per cent in the fourth quarter of the year.
The Chinese numbers contrasted sharply with PMI reports for South Korea, Taiwan and Japan, all of which showed a continuing slowdown in the wake of very rapid growth after the sharp contraction caused by the global financial crisis.
The HSBC Taiwan index fell to 48.6 from 49 in September, the third successive monthly number suggesting a contraction. The bank's index for South Korea fell to 46.7 from 48.8, the second successive monthly number below 50.
The Nomura Japan manufacturing purchasing managers' index, which was released on Friday, fell to 47.2 from 49.5, the second monthly contraction in a row, indicating that slowing economic conditions and the strong yen are hurting most Japanese manufacturers.
The industrial slowdown in Asia outside China suggests that economic growth is decelerating from the very high rates of expansion achieved after the global crisis.
Gross domestic product for the region excluding Japan soared by 9 per cent between April 2009 and June this year, largely on the back of a 25 per cent rise in industrial production over the same period. That reflected an increase in domestic consumption that more than compensated for a fall in exports to the western advanced economies.
The first clear sign that Asia's overall economic growth may be slowing came in Singapore in October, where preliminary GDP figures for the third quarter showed a contraction of 19.8 per cent, quarter on quarter, seasonally adjusted, which was much bigger than consensus forecasts.
That compared with growth of 24 per cent on the same basis in the second quarter, and 45.7 per cent in the first. Wealthy Singapore is often a bellwether for Asia. It was the first Asian country to move into recession when the crisis hit home in 2008, and the first to start growing again a year ago.
Calculations by Credit Suisse, the investment bank, suggest that industrial production growth in Asia excluding Japan and China may fall as low as 3.5 per cent by January, compared with a long-term average of 6.1 per cent.
Underlying the production slowdown is a steady decline in PMI indices, which track a range of indicators such as business confidence, prices and new orders. Leading indicators from Singapore and Australia indicate a contraction in October, with even fast-growing India expected to report a deceleration.
In spite of the manufacturing slowdown in many countries, no one is predicting a return to recession. The Asian Development Bank has upgraded its 2010 GDP growth forecast for Asia excluding Japan to 8.2 per cent from 7.5 per cent, with growth of 7.3 per cent in 2011.
Source:The Financial Times Limited 2010
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