A Chinese manufacturing index signaled the first expansion in 13 months, adding to signs that economic growth is rebounding after a seven-quarter slowdown.
The preliminary reading was 50.4 for a purchasing managers’ index released today by HSBC Holdings Plc (HSBA) and Markit Economics. It compares with a final level of 49.5 for October. A reading above 50 indicates expansion.
Gains in manufacturing bolster prospects for a sustained pickup in economic growth that slowed last quarter to the weakest pace in more than three years. A rebound may smooth a once-a-decade leadership transition for the ruling Communist Party, set to install Li Keqiang as premier in March, and reduce the likelihood of additional monetary stimulus.
“The economic recovery continues to gain momentum,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in a statement. “However, it is still the early stage of recovery and global economic growth remains fragile.”
China surpassed the U.S. to become the world’s biggest trading nation last year as measured by the sum of exports and imports, a milestone in the Asian nation’s challenge to the U.S. dominance in global commerce that emerged after the end of World War II in 1945.
U.S. exports and imports last year totaled $3.82 trillion, the U.S. Commerce Department said last week. China’s customs administration reported last month that the country’s total trade in 2012 amounted to $3.87 trillion. China had a $231.1 billion annual trade surplus while the U.S. had a trade deficit of $727.9 billion.
China’s emergence as the biggest global trading nation gives it increasing influence, threatening to disrupt regional trading blocs as it becomes the most important commercial partner for countries including Germany, which will export twice as much to China by the end of the decade as it does to neighboring France, said Goldman Sachs Group Inc.’s Jim O’Neill.
“For so many countries around the world, China is becoming rapidly the most important bilateral trade partner,” O’Neill, chairman of Goldman Sachs’s asset management division and the economist who bound Brazil to Russia, India and China to form the BRIC investing strategy, said in a telephone interview. “At this kind of pace by the end of the decade many European countries will be doing more individual trade with China than with bilateral partners in Europe.”
Still, the U.S. economy is more than double the size of China’s, according to the World Bank. In 2011, the U.S. gross domestic product reached $15 trillion while China’s totaled $7.3 trillion.
“It is remarkable that an economy that is only a fraction of the size of the U.S. economy has a larger trading volume,” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, said in an e-mail. “The surpassing of the U.S. is not because of a substantially undervalued currency that has led to an export boom,” said Lardy, noting that Chinese imports have grown more rapidly than exports since 2007.
The U.S. emerged as the preeminent trading power following World War II as it spearheaded the creation of the global trade and financial architecture and the U.K. began dismantling its colonial empire. China began focusing on trade and foreign investment to boost its economy after decades of isolation under Chairman Mao Zedong. Economic growth averaged 9.9 percent a year from 1978 through 2012.
China’s State Council approved an income-distribution plan intended to tackle the nation’s wealth gap, with the government describing the task as huge, complicated and unable to be completed in a single step.
The 35-point blueprint targets boosting minimum wages to at least 40 percent of average salaries, loosening controls on lending and deposit rates and increasing spending on education and affordable housing. State-owned enterprises should contribute more to the treasury, according to a statement yesterday on the government’s website.
The gap between rich and poor poses risks for a new Communist Party leadership, headed by Xi Jinping, that’s seeking to maintain a six-decade-long grip on power and sustain the nation’s expansion by boosting domestic demand. The key question is how effectively the government implements the policies, according to analysts at Nomura Holdings Inc., Societe Generale SA and Bank of America Corp.
“It’s a good plan that came a little bit late,” Yuan Gangming, a researcher with the government’s Chinese Academy of Social Sciences in Beijing, said in a telephone interview. “The income gap in China is so big now that it brings huge risks of derailing China from its growth path.”
The nation’s Gini coefficient was 0.474 in 2012, statistics bureau data showed last month, above the 0.4 level used by analysts as a gauge of the potential for social unrest.
China’s campaign to upgrade its economic data, from plugging leaks to expanding sample sizes, is yet to tackle one gap: the monthlong delay each year in releasing some key January numbers.
Government agencies on Feb. 8 will report slower inflation of 2 percent and faster export growth of 17.3 percent, according to the median estimates of analysts for figures skewed by the timing of a weeklong Lunar New Year holiday. Data for industrial output, retail sales and fixed-asset investment won’t be publicly updated until March.
The wait prevents analysts and investors from fully gauging growth in the world’s second-largest economy following the first acceleration in almost two years last quarter. While it’s not simple to account for the effects of a festival held on different dates each year, that shouldn’t keep the government from releasing data, according to analysts at Royal Bank of Scotland Plc and Mirae Asset Financial Group.
“The statistics bureau could do a better job simply by releasing the January raw data for economists and investors to digest themselves, without any seasonal adjustment,” said Joy Yang, chief Greater China economist at Mirae Asset in Hong Kong and a former International Monetary Fund researcher. “The big issues for China’s data are consistency, transparency, and reliability.”
The Philippine and Taiwan economies grew more than forecast last quarter, and Singapore’s jobless rate fell to a five-year low, signaling an upswing at the end of 2012 that underscores Asia’s role leading a global recovery.
In the Philippines, gross domestic product grew 6.8 percent from a year earlier, while Taiwan reported a preliminary 3.42 percent gain and upgraded its full-year growth forecast. Singapore’s unemployment was 1.8 percent.
Asia’s resurgence as China rebounds contrasts with the U.S. yesterday reporting an unexpected decline in gross domestic product after defense spending plunged. Meantime, Japan’s economic outlook depends on Prime Minister Shinzo Abe reviving wages and spending, with less-than-forecast industrial output for December highlighting the challenge ahead.
“Asia is leading the global recovery,” said Glenn Levine, an economist at Moody’s Analytics in Sydney, who has covered Asian economies for almost eight years. “China has started to gather momentum as the various domestic stimulus policies kick in and that lifts the region. Southeast Asia is doing very well autonomously.”
Taiwan raised its forecast for this year’s growth to 3.53 percent from 3.15 percent as China’s economic rebound boosted its imports, underscoring President Ma Ying-jeou’s case for closer trade and investment ties. The island plans to allow more visitors and securities investment from the mainland, and let domestic lenders conduct business in yuan by early February.
China’s manufacturing is expanding at the fastest rate in two years, according to a private survey of companies, bolstering prospects that economic growth will accelerate for a second straight quarter.
The preliminary reading of a Purchasing Managers’ Index (SHCOMP) was 51.9 in January, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 51.5 final reading for December and the 51.7 median estimate of 17 analysts surveyed by Bloomberg News.
The data suggest that China’s expansion at the start of 2013 will equal or exceed its 7.9 percent clip in the fourth quarter. Sliding Japanese exports and below-forecast growth in South Korea reported today underscore Asian economies’ dependence on China as austerity measures in Europe limit demand.
“Despite the still-tepid external demand, the domestic- driven restocking process is likely to add steam to China’s ongoing recovery in the coming months,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement.
Asian stocks pared losses and China’s benchmark gauge traded at a seven-month high before retreating on North Korea’s threat to conduct a nuclear test. The Shanghai Composite Index fell 0.1 percent as of the 11:30 a.m. local-time break. It had gained 18 percent through yesterday from its 2012 low on Dec. 3. The MSCI Asia Pacific Index of stocks was little changed as of 12:50 p.m. in Tokyo.
Japan’s shipments abroad dropped 5.8 percent in December from a year earlier, compared with a median estimate for a 4.2 percent decline in a Bloomberg News survey of 23 economists. The annual trade deficit also swelled to a record, bolstering the case for Prime Minister Shinzo Abe to weaken the yen even as trade tensions mount.
South Korea’s economy grew 1.5 percent from a year earlier, unchanged from the expansion in the third quarter, the Bank of Korea said today. That compared with the median 1.8 percent estimate of 12 economists.
Fan Gang, a former adviser to China’s central bank, said in an interview yesterday that the risk of the nation’s economy overheating has resurfaced as new regional-government officials try to boost development.
If confirmed in the final reading Feb. 1, the HSBC gauge would be at the highest level since January 2011. A separate, government-backed purchasing managers’ index will be released the same day. The official gauge showed a third month of expansion in December with a reading of 50.6, unchanged from November.
China’s economic growth accelerated for the first time in two years as government efforts to revive demand drove a rebound in industrial output, retail sales and the housing market.
Gross domestic product rose 7.9 percent in the fourth quarter from a year earlier, the National Bureau of Statistics said in Beijing today. That compared with the 7.8 percent median estimate in a Bloomberg News survey and 7.4 percent in the previous period. Industrial output in December rose a more-than- expected 10.3 percent and fixed-asset investment for the year gained 20.6 percent.
The recovery adds to evidence that the global economy is improving, after U.S. data yesterday showed housing starts at a four-year high, European bond yields receded from crisis levels and Japan announced a $116 billion stimulus. To sustain growth, China’s incoming premier, Li Keqiang, may need to confront the fading effects of government support, a likely pickup in inflation and rising risks from shadow banking.
“China’s recovery is in quite good shape,” Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong, said in a telephone interview. “Domestic pro-growth policies are likely to wane in mid-2013,” yet demand from abroad may pick up in the second half, he said.
Improving investor confidence in China’s outlook has lifted mainland stocks and the currency. The Shanghai Composite Index (SHCOMP), the nation’s benchmark gauge, has advanced 18 percent from an almost four-year low on Dec. 3, including a 1.4 percent rise today.
China’s exports rose more than forecast last month while a broad measure of credit surged 28 percent, helping the nation’s new leaders sustain a pickup in economic growth after a seven-quarter slowdown.
Overseas shipments increased 14.1 percent from a year earlier, the most since May, compared with the 5 percent median forecast in a Bloomberg News survey of 40 economists and November’s 2.9 percent gain. Imports grew 6 percent after being unchanged in the previous month. The trade surplus almost doubled from a year earlier to $31.6 billion.
A rebound in trade may give policy makers including Li Keqiang, set to become premier in March, more time to shift the economy toward domestic consumption to sustain expansion. Expansion may be set to bounce back after growth cooled to an estimated 13-year low in 2012 as Europe’s debt crisis crimped demand for Chinese goods.
“China’s exports are set to recover as the world economy is seeing improvement,” Li Miaoxian, a Beijing-based economist with Bocom International Holdings Co., the investment banking unit of Bank of Communications Co., said before the report. He cited a resolution in U.S. fiscal talks and an easing in Europe’s debt crisis, forecasting 10 percent growth in China’s exports for 2013.
China will have a bigger influence than the U.S. or Europe over the economies of developing nations as the world’s biggest exporter increases its contribution to global growth, according to HSBC Holdings Plc. (HSBA)
“We are moving away from a U.S.- or Europe-led world to a world led by China,” Stephen King, HSBC’s chief economist, wrote in an Emerging Markets Index report published today. “China will make its biggest-ever contribution to global growth in 2014,” King said, in what he termed a “great rotation.”
China’s economic growth is set to accelerate to 8.6 percent this year, from 7.8 percent in 2012, King said, a rate of growth that will benefit neighboring countries and commodities-rich nations. China’s expansion compares with a 5.4 percent growth forecast for the emerging world as a whole, according to HSBC.
Exports to China currently account for 12 percent of South Korea’s gross domestic product, up from 3.5 percent in 2000. Malaysia, Singapore, Australia, Chile, Kazakhstan and Saudi Arabia have also increased their exports to China while exports by the U.S. and the U.K. to the Asian country represent less than 1 percent of their respective GDPs.
“Global economies, particularly emerging markets, are driven more and more by the new world, which is exemplified by Chinese strength and contribution to global growth,” Murat Ulgen, HSBC’s chief economist for central and eastern Europe and sub-Saharan Africa said by phone.
While China’s expected growth rate this year is not as high as the 10 or 11 percent levels seen in the past, “China is now a much larger economy and because of that, Chinese contribution to global growth is much bigger,” Ulgen said.
China’s manufacturing unexpectedly expanded at the fastest pace in 19 months in December, boosting optimism that a recovery in the world’s second-biggest economy is gaining traction.
The final reading of a Purchasing Managers’ Index was 51.5 in December, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 50.9 preliminary reading on Dec. 14 and a final 50.5 in November. A level above 50 indicates expansion.
China’s economy may have rebounded after a seven-quarter slowdown as the government increased spending on infrastructure and accelerated investment-project approvals. The pickup may smooth the ruling Communist Party’s once-a-decade transition to a new generation of leaders headed by Xi Jinping, who took office as general secretary in November.
“Momentum is likely to be sustained in the coming months when infrastructure construction runs into full speed and property market conditions stabilize,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in the statement. Manufacturing output and purchasing accelerated this month, even as new export orders showed a “slight fall” on weak demand in Europe, Japan and the U.S., HSBC said.
The median forecast of 14 economists surveyed by Bloomberg News was for a final reading of 50.9.
A separate, government-backed purchasing managers’ index probably rose to 51 in December from 50.6 the previous month, according to the median estimate in a Bloomberg News survey of 25 economists ahead of the report due tomorrow. That would be the highest reading in eight months.
China has set its initial target for economic growth at 7.5 percent for a second year and tightened its inflation goal to the lowest level since 2010, two bank executives and a regulatory official briefed on the matter said.
Policy makers said during the annual central economic work conference that ended on Dec. 16 that they aim to keep inflation at about 3.5 percent, they said, asking not to be named as they aren’t authorized to disclose the details. The government didn’t set targets for money supply or new loans at the meetings, the three bank executives said.
Chinese officials are signaling tolerance for a slower pace of growth than the average of more than 10 percent for the past decade as the nation seeks to shift to a consumer-driven economy. China will seek a higher “quality and efficiency” of growth next year, the official Xinhua News Agency reported after the leaders’ meeting.
“A 7 percent growth target would have given a stronger signal that the government wants to focus more on quality and structural change,” said Wang Tao, chief China economist at UBS AG in Hong Kong. “However, given that the economy is already in a cyclical upswing, a 7 percent target would mean policy tightening, so 7.5 percent is more neutral and realistic.”
China’s benchmark stock gauge, the Shanghai Composite Index (SHCOMP), gained 0.8 percent to 2,178.19 at 1:39 p.m. and has rebounded 11 percent since slumping to an almost four-year low on Dec. 3. The CSI 300 Index climbed 1.1 percent to 2,392.91.