China manufacturing growth strengthens recovery

China`s manufacturing expanded at the fastest pace in 20 months in December, cementing the recovery in the world`s third-biggest economy.

The Purchasing Managers`Index climbed to a seasonally adjusted 56.6, the Federation of Logistics and Purchasing said Friday in an e-mailed statement in Beijing. That compares with 55.2 in November and the median 55.4 estimate in a Bloomberg News survey of seven economists.

The boost to Chinese manufacturing from subsidies for home- appliance purchases and tax rebates for exporters will continue this year as the government extends policies to counter the financial crisis. China`s growth will accelerate to 8.8 percent in 2010, four times faster than the U.S., as the world economy expands 2.4 percent, the United Nations forecast last month.

"Manufacturing will stay at a high level as industrial production quickens and companies receive more orders for new- year holiday sales," Lu Zhengwei, an economist at Industrial Bank Co. in Shanghai, said before Friday`s data. "Exports may return to growth in December, aiding manufacturing growth."

Industrial production grew in November at the fastest pace since March 2008, exports dropped the least in 13 months and imports surged.



Friday`s figure compares with a record-low 38.8 in November 2008, when recessions in the U.S., Europe and Japan sent export orders plunging. A reading above 50 indicates an expansion.

A measure of new export orders fell to 52.6 in December from 53.6 in November and a gauge of purchasing prices increased to 66.7 from 63.4, according to the statement.



Production costs



"Attention should be focused on the drop in the export- order index, which shows there shouldn`t be premature optimism about an improvement in international markets," Zhang Liqun, a researcher at the State Council Development and Research Center, said in the statement. "The rise in the purchasing price index shows that production costs for companies are increasing."

China and Asia are leading the world recovery, helping to boost global confidence, which held near a record high in December, according to a Bloomberg survey of users of six continents, first conducted two years ago. China may overtake Japan as the world`s second-biggest economy this year.

Profits are climbing as the economy gathers pace. Beijing Automotive Industry Holding Co., the company which is buying technology from General Motors Corp.`s Saab unit, said Dec. 23 that 11-month net income more than tripled. China Gas Holdings Ltd.`s profit in the six months ended September jumped nearly six-fold.



Foreign pressure



Premier Wen Jiabao said Dec. 27 that China won`t make the mistake of ending stimulus policies too soon, even as he signaled that the government may cool new lending that reached an unprecedented $1.3 trillion in the first 11 months of last year. Wen also said China will "absolutely not yield" to pressure from foreign countries for currency gains as the nation holds the yuan at about 6.83 per dollar.

Commerce Minister Chen Deming pledged Dec. 24 to maintain export tax rebates in 2010 because of a slow recovery in global demand. Also aiding manufacturers, a program of subsidies for purchases of appliances such as refrigerators and washing machines within rural China will be expanded by raising price caps to make more products eligible.

China`s economic growth in the fourth quarter probably topped the third-quarter`s 8.9 percent, Xu Xianchun, deputy head of the statistics bureau said last month. Gross domestic product probably expanded 8.5 percent in 2009 and may grow 9.4 percent in 2010, according to a Bloomberg News survey of economists.



Growth momentum



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 January 2005.

"The forward-looking components of the PMI indicate continued expansion in both domestic and external demand," said Jing Ulrich, Hong Kong-based chairwoman of China equities and commodities at JPMorgan Chase & Co. "We expect China`s strong economic growth momentum to continue in 2010." (Bloomberg)