China's stable factory activity points to solid economy

BEIJING - Despite slower expansion in October, China's manufacturing sector remained steady with a major indicator standing above the boom-bust line for a 15th straight month, adding to signs of continued momentum in the wider economy.

The manufacturing purchasing managers' index (PMI) came in at 51.6, falling from 52.4 in September, a more-than-five-year high, and 51.7 in August, the National Bureau of Statistics (NBS) said Tuesday.

A reading above 50 indicates expansion, while below reflects contraction.

NBS statistician Zhao Qinghe mainly attributed the slowdown to a high base in September, a week-long holiday and stricter environmental regulation. "The growth in production and market demand eased to some extent," he said.

Factory activity of high energy consumption and heavy pollution softened as the government stepped up efforts to strengthen environmental protection. Non-metallic mineral products and oil refining went down substantially.

"Despite the retreat, the indicator was still 0.4 percentage points higher than that of a year ago and staying at the average level of this year," Zhao said, pointing to the impetus from high-end manufacturing and the production of consumer goods.

The manufacturing of automobiles, special equipment, electric apparatus, medical devices, food and beverage, textile and garment registered strong increases.

"The PMI stabilized in positive territory after gains of two consecutive months," said Zhang Liqun with the Development Research Center of the State Council. "Stable sub-indices in production, stock and purchases indicate the economy has stronger resilience."

The NBS data also showed milder expansion in the service sector this month as the non-manufacturing PMI went down to 54.3 from 55.4 in September.

Cai Jin, deputy head of China Federation of Logistics and Purchasing, said the non-manufacturing sector was still generally steady, adding that consumption would continue to play a leading role in driving economic growth.

The PMI came as the first major economic indicator for the last quarter, a period that some analysts had predicted would witness a loss of impetus in the economic engine. But the fresh data suggests that lingering downward pressures will be limited.

Steven Zhang, an economist with Morgan Stanley Huaxin Securities, said the inertia of growth impetus from the first three quarters would help ensure the economy to expand at a 6.7-percent pace during the remainder of the year.

The IMF has raised its forecast for China growth for the fourth time this year, estimating the economy to grow 6.8 percent this year and 6.5 percent next year, both 0.1 percentage points higher than previous predictions.

The official growth target set at the beginning of the year was only around 6.5 percent for 2017.

Given less concern on the growth rate, Zhang with Huaxin believes the government is unlikely to loosen its "prudent and neutral" monetary policy.

But some economists still cautioned against over-optimism, saying growth may have peaked.

The NBS data showed the divergence between industrial giants and small manufacturers continued. While large companies sat comfortably above the boom-bust line, small and medium-sized enterprises were in contraction territory with their PMI readings at 49 and 49.8, respectively.

China's GDP expanded 6.9 percent year on year in the first three quarters, holding steady with the 6.9 percent growth in the first half despite a slightly slower 6.8 percent increase in the third quarter.