Page last updated at 12:17 GMT, Monday, 4 January 2010

China manufacturing growth boost

Chinese manufacturing
The Chinese economy is recovering quickly from the downturn

Chinese manufacturing grew by the biggest margin in five years in December, fuelling growth expectations for the world's third-biggest economy.

The purchasing managers index (PMI) from HSBC Holdings and Markit Economics reported the fastest rate of growth since records began in 2004.

The index is based on a survey of more than 400 Chinese manufacturers.

The finding supports the view among some economists that China's economy could grow by as much as 10% this year.

But the survey also renews concerns over inflation, with prices rising at their fastest rate in 17 months.

The PMI measure rose to 56.1, up from 55.7 a month earlier. A measure over 50 represents growth in the manufacturing sector.

The figure was also in line with China's official PMI figure, released on 1 January, which showed growth in manufacturing at a 20-month high.

Growth hopes

The growth in manufacturing has fuelled expectations that the Chinese economy could return to double-digit growth figures.

While other countries slipped into recession in 2009, China saw its annual GDP growth rate slip to a low of 6.1% in April last year.

The... effect of stimulus measures is filtering through to substantially benefit the manufacturing sector
Qu Hongbin, chief China economist at HSBC

Last month, the Chinese government said it was targeting a growth rate of 8%.

However, some economists believe that China is already growing at an annualised rate of at least 10%, with similar growth for 2010 forecasted.

Commenting on the figures, Qu Hongbin, chief China economist at HSBC, said the Chinese authorities' actions to help the economy were clearly working.

"The second-round effect of stimulus measures is filtering through to substantially benefit the manufacturing sector," he said.

At the end of 2008 the Chinese government announced a 4 trillion yuan ($586bn; £354bn) stimulus plan that pumped money into the economy through spending on public infrastructure projects.

Overheating?

But the expansion in manufacturing raised inflation concerns, with output prices rising at their fastest pace since July 2008 according to HSBC.

Chinese companies are also reporting rising costs of raw materials including oil and steel.

But Qu Hongbin from HSBC argued that overcapacity in manufacturing, combined with the government's ability to rein in spending will help keep a lid on inflation.

"We believe inflation will be manageable in the coming months," he said.



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