International | Dec 01 2006
By Rudi Filapek-Vandyck
Chinese manufacturing operating conditions improved for a twelfth consecutive month in November, according to CLSA’s latest China Purchasing Managers survey.
CLSA reports its China Purchasing Managers’ Index (PMI) rose from 52.1 in October, to 53.0 last month. This is the index’s highest level in four months and, CLSA believes, indicative of a "solid rate of expansion".
CLSA Chief Economist Jim Walker believes this should be regarded as a surprising development given the Chinese government’s efforts to clamp down on loan growth and local government projects. Walker says it is also surprising in that the external market is clearly weakening. He believes all this is not necessarily a positive development for if
the November reading is the start of a new uptrend in China more severe central bank actions can be expected.
The survey shows growth of Chinese manufacturing output accelerated to a four-month high in November. Production was raised in response to a further increase in incoming new orders. The development of additional product lines was also reported to have led to higher output.
CLSA believes its November data signaled a solid increase in new orders, with the rate of expansion quickening to a three-month high. Growth of new business was underpinned by demand from domestic clients, as new export orders fell for the first time in the survey history.
According to CLSA, part of the rise in new orders was met through the depletion of warehouse stocks of finished goods, which declined for a fourth successive month in November. Although still only modest, the rate of contraction quickened to the sharpest since February.
Also, backlogs of work at Chinese manufacturing firms rose during the month, following a slight decline during the previous month. However, says CLSA, the rate of growth of outstanding business was only marginal.
Purchasing activity continued to rise in November, continuing the trend recorded throughout the survey’s thirty-two month history. CLSA points out the rate of growth accelerated to a nineteen-month high. Consequently, stocks of purchases expanded at a solid pace. Average lead-times lengthened for a tenth successive month.
Also, CLSA highlights the rate of input price inflation in the Chinese manufacturing sector has again accelerated sharply. Panellists widely reported increased oil costs during the month while output price inflation also picked up.
Chinese manufacturing employment increased for the eighth in consecutive months.
The CLSA China Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to Chinese Industrial production.
