China’s manufacturing expanded at the fastest pace in six months in October, indicating the economy can bear more gains in the yuan and interest-rate increases to cool price pressures.
A purchasing managers’ index released by the logistics federation rose to 54.7 from 53.8 in September, with input prices climbing the most in six months. A second PMI, from HSBC Holdings Plc and Markit Economics, jumped to 54.8 from 52.9.
Asian stocks rallied on signs of sustained momentum in the world’s fastest-growing major economy. China may secure growth of 10 percent this year even after raising interest rates last month for the first time since 2007, according to the median estimate of analysts surveyed by Bloomberg News.
"Economic activities remained strong, while inflation pressures continued to mount,” said Liu Li-Gang, a Hong Kong- based economist at Australia & New Zealand Banking Group Ltd. “Inflation is far from peaking, which could invite another interest-rate hike by December.”
The Shanghai Composite Index jumped 1.1 percent as of 10:13 a.m. local time, after climbing 12 percent last month as the best global performer. The MSCI Asia Pacific Index rose.
The reading in the logistics federation’s PMI compared with 53.8 for both the previous month and the median forecast of 13 economists surveyed by Bloomberg News.
Rising Prices
An index of input prices rose to 69.9 in October from 65.3 in September, the biggest gain of 11 sub-indexes. Manufacturers’ new orders are near boom levels, boosted by domestic spending, including the construction of welfare homes and accelerated work on stimulus projects, the logistics federation said.
In contrast, a measure of new export orders slipped to 52.6 from 52.8. A reading above 50 indicates an expansion.
Today’s reports added to a central bank statement last week in highlighting the economy’s momentum. Growth quickened in the third quarter from the second, the People’s Bank of China estimated, without giving a number.
Inflows of money from abroad are complicating management of the economy after a record expansion in credit in 2009 that added to asset-bubble risks. Inflation accelerated to 3.6 percent in September, the fastest pace in 23 months, and property prices have made record gains this year.
Borrowing Costs
On Oct. 19, the central bank raised rates from crisis levels. It severed the yuan’s peg to the dollar in June, letting the Chinese currency gain more than 2 percent since then.
In the first three months of 2010, an 11.9 percent expansion from a year earlier fueled concern that the Chinese economy faced overheating risks. Growth slowed to 10.3 percent in the second quarter and 9.6 percent in the third as the government reined in credit growth. An energy-efficiency drive in industry and a crackdown on real-estate speculation may also cap the nation’s expansion.
Manufacturing growth “is set to moderate in the coming months” because of rising commodity prices and government measures including last month’s interest-rate increase and restrictions on property purchases, Isaac Meng, a Beijing-based economist at BNP Paribas, said before today’s release.
Crude steel output fell in September from a year earlier as mills such as Hebei Iron & Steel Co. cut production due to power usage limits. Heavy industry will continue to report weaker gains in output because of the energy campaign, National Bureau of Statistics spokesman Sheng Laiyun said Oct. 21.
The government-backed PMI, released by the Beijing-based China Federation of Logistics and Purchasing and the National Bureau of Statistics, covers more than 820 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics. The HSBC survey covers more than 400 manufacturing firms.
