BEIJING (Dow Jones)--China's manufacturing activity continued to grow quickly in January, two purchasing managers indexes showed Monday, suggesting the economy continues to expand, despite recent government efforts to curb booming bank lending.
The HSBC China Manufacturing Purchasing Managers Index, a gauge of manufacturing activity across the nation, rose to a record high of 57.4 in January from 56.1 in December. In a sign the regional economy is also recovering from the global recession that began in 2008, South Korea and Taiwan also reported strong manufacturing growth for the month.
For China, the world's fastest-growing major economy, January was the fourth month in a row the HSBC PMI has risen, as businesses reported more orders at home and abroad. It was the 10th month in a row that the PMI's reading was above 50, indicating growth in manufacturing from the previous month. A reading below 50 indicates activity is falling.
A separate index, issued by the China Federation of Logistics and Purchasing and the National Bureau of Statistics, was 55.8 in January, indicating the 11th straight month of manufacturing growth. Though the index fell from 56.6 in December, it was the second-highest level since activity began to slow in May 2008.
China poured stimulus funds into the economy last year to promote growth, but started taking more measures to curb lending last month, worried that excessive credit is fueling asset bubbles and could trigger inflation.
At least two Chinese banks suspended lending through the end of January for some of their branches, while a Big Four lender, Bank of China Ltd. (3988.HK), ordered its credit officials to stop making new yuan loans due to overly fast lending growth earlier in the month. Almost all Chinese banks are majority owned by the government.
Those moves roiled financial markets worldwide, as investors worried about a possible slowdown in the country.
"The economy will continue to grow robustly in the first half of this year. Worries about tightening and a sudden slowdown are certainly exaggerated," said Royal Bank of Scotland economist Ben Simpfendorfer. "We don't need growth to accelerate further."
The stimulus program has driven a growth pickup. China's economy expanded 10.7% in the fourth quarter from a year earlier, picking up from 9.1% growth in the third quarter and bringing full-year growth to 8.7%.
Economists say lending likely remained brisk in January despite Beijing's attempts to slow credit growth, which included raising the share of deposits banks must hold on reserve. They say a slowdown in credit would be unlikely to hurt the economic recovery, especially because exports are likely to grow this year after falling in 2009.
"Even if new yuan loans were under control, liquidity in China's real economy still remained ample last month, which supported manufacturing activity," said Wang Tao, China economist for UBS Securities.
Wang said she expects the central bank to tighten monetary policy further in the coming months, but lending will remain sufficient to support strong economic growth this year, which she expects to be around 9%.
Businesses reported receiving more export orders last month. The new-export orders subindex of the CFLP PMI rose to 53.2 in January from 52.6 in December, while the subindex in the HSBC PMI rose at a near-record rate. HSBC didn't give a breakdown of its PMI subindexes.
Zhang Liqun, an analyst for CFLP, pointed to continued risks in the economy.
"China's economy is at a key stage of stabilizing the economic recovery," Zhang said in a statement. "Exports' positive role in the economic growth will strengthen, but higher costs and more fierce market competition may make the development environment for companies more severe."
The companies polled for both PMIs said input costs rose in January, too, reflecting a potential source of inflationary pressure. The central bank said Friday international commodity price rises and high levels of credit are adding to inflationary pressures.
The CFLP input-cost subindex rose to 68.5 in January from 66.7 in December, while HSBC cautioned that input price inflation was the strongest since July 2008.
"Rising input and output prices also point to greater inflationary pressure, which will likely prompt more tightening measures in the coming months," Hongbin Qu, HSBC's chief economist for China, said in a statement.
Separately, the HSBC Taiwan Purchasing Managers Index rose to 61.7 in January from 58.7 in December. January was the 11th consecutive month the PMI has been above 50.0.
In South Korea, the PMI rose to 55.6 last month from 52.8 in December, HSBC said. New orders rose at the fastest pace in 25 months, supported by improved demand both domestically and from abroad, reflecting the recovery in global economic conditions, it said.
