China Sustains Expansion as Exports Climb, Price Pressures Grow

何鸿燊

By Bloomberg News

Feb. 1 (Bloomberg) -- China, the world’s third-biggest economy, sustained its manufacturing expansion in January as export orders jumped and inflation pressures grew, two surveys showed today.

A purchasing managers’ index released by HSBC Holdings Plc and Markit Economics rose to a record. A second survey, by the Federation of Logistics and Purchasing, recorded the second- fastest expansion since 2008.

Stocks tumbled as the reports spurred concern that the government will have to escalate efforts to rein in the credit growth that has fueled the nation’s infrastructure spending surge. After raising banks’ reserve requirements this month and targeting reduced credit growth in 2010, policy makers may raise interest rates by the end of June, according to the median estimate in a Bloomberg News survey of economists.
“It’s a solidly expansionary reading, consistent with expectations of continued momentum in the economy,” said David Cohen, an economist with Action Economics in Singapore.

The benchmark Shanghai Composite Index of stocks fell 1.5 percent as of 10:55 a.m., extending this year’s slide to 10 percent.

The HSBC index rose to a seasonally adjusted 57.4 from 56.1 in December and the survey showed input and output price indexes rose to the highest levels since July 2008. Export sales rose at a “near-record rate,” a statement on Markit’s Web site said.

Meanwhile, the government-backed Purchasing Managers’ Index fell to a seasonally adjusted 55.8 from 56.6 in December, an e- mailed statement showed. Growth in output and orders slowed, while export demand rose more quickly.

Snowstorms

The figures may partly reflect disruptions from cold weather and snowstorms, JPMorgan Chase & Co. and UBS AG. said.

China is paring monetary stimulus to limit inflation and the risk of asset bubbles in the economy that Nomura Holdings Inc. says will contribute a third of global growth this year. China’s growth accelerated to 10.7 percent, the fastest pace since 2007, in the fourth quarter of 2009 after a 4 trillion yuan ($586 billion) stimulus package and record lending helped the nation lead the world out of recession.

Today’s figure in the logistics federation’s survey was less than the median 56.5 estimate in a Bloomberg News survey of 16 economists. The decline was the first in eight months. The output index dropped for the first time since May last year, falling to 60.5 from 61.4 in December. The export-orders index rose to 53.2 from 52.6.

‘Crucial Stage’

“China’s economy is at a crucial stage of moving from rebounding to stabilizing” with exports set to make a bigger contribution to growth, said Zhang Liqun, a researcher at the State Council Development and Research Center. “In the meantime, companies may face a tougher environment with rising costs and intensified competition.”

Companies benefiting from the nation’s rebound include Chongqing Changan Automobile Co., which said Jan. 27 that 2009 profit may have climbed more than 4000 percent on higher sales and cost controls. China Railway Construction Co. said the same day that profit likely increased more than 50 percent from 3.6 billion yuan a year earlier because of the nation’s extra infrastructure spending.

The world’s third-biggest economy may gain momentum this quarter as exports surge 30 percent, making an interest-rate increase more likely as inflation rises, according to China International Capital Corp. China’s 10.5 percent expansion this year will compare with the global economy’s 4.2 percent, Nomura forecasts.

Faster Pace

The nation’s growth may accelerate to 12 percent this quarter, triggering a rate increase as early as this month as inflation rises to 3 percent, according to Sun Mingchun, an economist at Nomura in Hong Kong.

China is pursuing a “proactive fiscal policy” and moderately loose monetary policy,” Vice Premier Li Keqiang reaffirmed in a speech on Jan. 28 at the World Economic Forum in Davos, Switzerland.

Such policies will lead to “huge markets for the world and huge opportunities” for foreign companies, he said. Li’s comments reflected a pledge in November by Premier Wen Jiabao to speed the shift from investment- and export-led growth to an economy “driven by consumption, investment and exports in a coordinated way.”

“We expect GDP to grow by 9 percent in 2010 and our next revision is more likely to be upward,” said Wang Tao, an economist with UBS AG in Beijing. “We expect the government to err on the side of keeping policy accommodative.”

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 started in 2005.

The official PMI surveys mainly large and state-owned companies, while HSBC’s sample of more than 400 is weighted more towards smaller businesses and export-related companies, said Xing Ziqiang, an economist at China International Capital Corp. It began in 2004.