China's vast manufacturing sector expanded moderately in October to snap three months of contraction, reflecting the resilience of robust domestic demand that is likely to soothe fears of an abrupt slowdown in the world's second-largest economy. HSBC's flash purchasing managers' index (PMI) also showed price pressures eased in China, underlining consumer price data that has shown a slight pullback in inflation from three-year peaks.
The flash PMI, designed to give an early snapshot of the month's factory activity, rose to 51.1 in October from September's final reading of 49.9 as new orders and new export orders expanded. The reading surpassed the 50-point level demarcating expansion from contraction for the first time since June, when the PMI was 51.6.
"Thanks to the pick-up in new orders and output, the headline flash PMI rebounded back into expansionary territory during October, marking a steady start to manufacturing activities in the four quarter," said Qu Hongbin, China economist at HSBC. Qu expects annual industrial output growth to hover around 13 percent in October and the central bank to keep monetary policy stable in the coming months.
Both new orders and new export orders sub-indexes rose above the 50-point mark in October. Given the gloomy global outlook, however, it is too early to determine if the rebound in export orders can be sustained. China's annual economic growth slowed to 9.1 percent in the third quarter from 9.5 percent in the second quarter and 9.7 percent in the first. Growth is expected to slow further. A Reuters poll showed analysts expect growth to weaken to 8.6 percent in 2012 from 9.3 percent this year.