China s HSBC PMI hits fresh high, warns of inflation

Tuesday, 05 January 2010 11:54

From International Desk - Special Reports

BEIJING: China s factories cranked up production in December on the back of bulging order books, but the strong demand also pushed prices higher and raised the spectre of inflation, according to a manufacturing survey. The HSBC purchasing manager index (PMI) rose to 56.1 in December, up from 55.7 a month earlier and the highest since the survey began in April 2004.

A reading above the watershed mark of 50 indicates an expansion of manufacturing activity. It capped a remarkable turnaround for Chinese factories, with the PMI averaging its highest quarterly reading in survey history in the final three months of 2009 after plumbing a record low a year earlier.

The findings were largely consistent with China s official PMI, released on January 1, which surged to a 20-month high in December. The second-round effect of stimulus measures is filtering through to substantially benefit the manufacturing sector, said Qu Hongbin, chief China economist at HSBC.

Heavy public spending on infrastructure launched in the depths of the global financial crisis in late 2008 has catalysed private investment in factories and property, driving demand higher for manufactured goods from drain pipes to electrical wire. But the government s very success in getting the economy back into gear is fuelling concerns about inflation.

Chinese manufacturers raised their prices at the fastest rate in 17 months in December, according to the PMI. Companies said the inflationary pressure came from a combination of buoyant market demand and rising raw material prices, particularly steel. Qu noted the significant increase in output prices but remained calm. We believe inflation will be manageable in the coming months, he said.

Courtesy : Business Recorder