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UPDATE 1-Industry survey shows China economy gaining strength

Published 04/30/2009, 09:43 PM
Updated 04/30/2009, 09:48 PM

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BEIJING, May 1 (Reuters) - Chinese manufacturing gained further momentum last month, a survey showed on Friday, adding to tentative evidence from around the world that the global economy may soon be on the path to recovery.

An index based on an official survey of executives in charge of purchasing in industries across China rose to 53.5 in April from 52.4 in March, reflecting strength in output and new orders.

The survey is carried out by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics.

It was the fifth month in a row that the Purchasing managers' Index has improved and the second straight month in which the index has been above the watershed of 50.

A reading over 50 indicates an expansion of activity in the manufacturing sector while one below 50 suggests contraction.

Sub-indexes for employment, imports and input prices all clawed their way back to the boom-bust mark, or beyond, for the first time in months.

"The April PMI indicates that the Chinese economy will keep recovering, a trend seen in the figures for investment, consumption and export growth in the first quarter," said Zhang Liqun, a researcher at the State Council's Development Research Centre think-tank.

In comments provided by the logistics federation, Zhang said the PMI has been signalling that the economy has reached a turning point and will become a very important advance indicator for growth.

The reading is now well above a record low of 38.8 plumbed in November, responding to aggressive fiscal and monetary stimulus from Beijing..

"While a fifth monthly improvement in the PMI reinforces our confidence that the Chinese economy is starting to turn around, it appears sensible to guard against excessive optimism," said Jing Ulrich, chairman of China equities for J.P. Morgan in Hong Kong.

With a sizeable inventory surplus weighing on heavy industries, output could stay at moderate levels while final demand gradually gathers strength, she said in a note to clients.

"Month-on-month and quarter-on-quarter improvements in economic indicators will be difficult to maintain and the pathway to recovery will not be entirely smooth," Ulrich commented.

Following is a breakdown of the purchasing managers' index:

Apr Mar Feb Jan Dec Nov Oct Overall PMI 53.5 52.4 49.0 45.3 41.2 38.8 44.6 Output 57.4 56.9 51.2 45.5 39.4 35.5 44.3 New orders 56.6 54.6 50.4 45.0 37.3 32.3 41.7 New export orders 49.1 47.5 43.4 33.7 30.7 29.0 41.4 Backlogs of orders 48.9 48.8 44.2 39.2 35.8 36.0 40.7 Stocks of finished goods 44.8 46.7 47.7 43.5 44.7 50.8 51.4 Quantity of purchases 56.2 54.0 49.5 44.3 36.2 34.2 42.4 Imports 50.0 48.8 41.8 39.9 33.3 32.2 39.4 Input prices 51.3 48.3 46.5 41.5 32.7 26.6 32.3 Stocks of purchases 46.9 47.5 45.6 43.9 40.6 39.5 42.6 Employment 50.3 48.6 46.1 43.0 43.3 44.3 47.0 Suppliers' delivery times 50.6 51.3 51.3 50.6 50.4 50.7 50.8 (Reporting by Langi Chiang and Alan Wheatley; Editing by Jan Dahinten)

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