Economic indicator increases from stronger output, rise in new orders

Manufacturing activity hit an 18-month high in October, a development that analysts said showed a consolidation of economic growth momentum for the fourth quarter.

The official manufacturing Purchasing Managers' Index rose to 51.4 in October from 51.1 in September, the fourth monthly gain in a row, the National Bureau of Statistics and the China Federation of Logistics and Purchasing said on Friday.

Stronger output and a continued increase in new orders combined to lift the PMI.

New export orders also continued to grow but at a modest pace, according to the statistics.

Zhu Haibin, chief economist at JPMorgan Chase & Co, said that the latest PMI reading was evidence of "solid" momentum for economic activity in the near term, providing a favorable backdrop for policies to focus on structural reform.

In October, the PMI for large manufacturers climbed to 52.3 from 52.1 in September, the 14th consecutive month that it held above 50. A PMI reading above 50 means expansion, while one below 50 indicates contraction.

The medium-sized enterprises' PMI climbed to 50.2 from 49.7, rising above 50 for the first time in five months. But the figure for small businesses declined to 48.5 from 48.8.

"It seems that the recovery is still mainly confined to large and medium-sized enterprises, while small enterprises still face a challenging environment," said Zhu.

A separate survey by HSBC Holdings Plc, which is more focused on small companies, yielded a manufacturing PMI of 50.9 in October, up from 50.2 in September. That was the strongest improvement for manufacturers' operating conditions in seven months.

"China is on track for a gradual growth recovery," said Qu Hongbin, chief economist in China at HSBC.

He said that the momentum for manufacturing growth in October led to the first expansion of employment since March, which in turn should support private consumption growth in the coming months.

Chen Gufei, an analyst at the financial research center of Bank of Communications, noted signs that industrial enterprises' investment plans are expanding. Production is also likely to continue expanding, Chen said.

"In the coming months, production by domestic manufacturers will maintain steady growth," he said.

However, Chen expressed concern about the moderate growth in new export orders, which might suggest weaker external demand in the fourth quarter.

The steady expansion of industrial output since July has supported the world's second-largest economy, with GDP growth rebounding to 7.8 percent in the third quarter from 7.5 percent in the second quarter and 7.7 percent in the first.

The government maintained a proactive fiscal policy and prudent monetary policy even when the pressure on economic growth increased in the first half.