Chinese manufacturing sector stays put with eighth straight month of growth
More positive news has come out in China, which has been the main driving force behind the raw materials sector ever since the economic downturn kicked in last autumn. China's Federation of Logistics and Purchasing (CFLP) said its PMI (purchasing managers index) reached 55.2 in October, signalling an increase in economic activity in the country and marking a nearly 1 point increase from September as well as the eighth straight month of growth in the Chinese manufacturing sector.
HSBC Holdings, which maintains a similar rating in China, put the PMI at 55.4, up from 55 for the previous month.
Seven of the 11 categories that make up the index rose, with the increase coming amid an overall expansion of the Chinese economy as the GDP grew 7.9% and 8.9% in Q2 and Q3 respectively, while imports and the number of new orders rose 2.1% and 1.7% from the previous month.
The ongoing fast paced recovery, with the economy currently expanding at the fastest rate in 18 months, is a direct result of the government's massive US$585 billion stimulus package announced last November and this year's US$1.27 trillion in new loans issued by state owned banks, which sparked economic activity and helped offset the impact of declining exports, the main factor behind China's rapid development prior to the inception of the global financial crisis.
China's Central Bank said last Friday the growth would be sustained and would likely top the 8% target set for this year by the government, while the stock market is likely to make further gains, having already posted a more than 60% increase so far this year.
Buoyed by the PMI update, the Shanghai composite index rose further today while other Asian markets were in decline. The increasing economic activity in China also bodes well for raw materials producers that have feared that the Chinese demand would go on decline following the expansion on the back of the government's money injection into the economy.
Foreign investment banks are stepping up their activities in China in anticipation of further economic growth. Banking group HSBC (LSE: HSBA) is planning to put a heavier emphasis on China, where it has already earned a pre-tax profit of US$752 million in the first half of the current year, making for a 15% of the total. Along with opening 15 to 20 new branches in China next year, HSBC plans to go as far as switch to a dual headquarters system in London and Hong Kong to gain stronger footing in the region.
Citibank's (NYSE: C) income in China reached US$190 million last year, a 95% year on year increase. Meanwhile, Standard Chartered's (LSE: STAN) income in China rose 27% over the same period, amounting to US$632 million.
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