China's economy stabilising; export orders tick up

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BEIJING -- China's manufacturing sector continued to expand moderately in May as new export orders improved, two surveys showed on Monday, adding to tentative signs that the world's third-largest economy is stabilising.

"Weak external demand is still hurting China's manufacturers, but conditions are gradually improving in response to stimulus spending... China remains on track for a moderate recovery after the sharp slowdown seen late last year," said Brian Jackson, an analyst with Royal Bank of Canada in Hong Kong.

The official purchasing managers' index (PMI) fell slightly to 53.1 from 53.5 in April, its third straight month above the mark of 50 that separates expansion from contraction.

A separate PMI published by Hong Kong-based brokerage CLSA rose to a 10-month high of 51.2 from 50.1 in April, its second month above 50.

Asian stocks and the Australian dollar shot to eight-month highs after the release of the data, fueling optimism that the worst of the global downturn may be over.

Both surveys showed a slight improvement in new export orders. The new export orders sub-index in the official PMI breached 50 for the first time since June 2008, rising to 50.1, while the equivalent index in the CLSA PMI reached 49.2, the sixth straight month of improvement.

The official survey, conducted by the China Federation of Logistics and Purchasing (CFLP), canvasses a bigger sample of mainly state-owned firms, while the CLSA survey covers more smaller, privately owned firms, although it is regarded as a better leading indicator particularly for the export sector.

The surveys also showed that the Chinese manufacturing sector is faring much better than in the West, where a number of similar indicators due later on Monday are expected to show further deep contractions in Western economies which are major consumers of Asian goods.

Russia's manufacturing sector contracted at its slowest pace in seven months in May, a further sign that the worst of the slowdown may have passed for major emerging economies.

South Korea's daily export value in May rose for the fourth straight month, a further sign of improvement in the global economy, though economists said it did not mean a lasting recovery had arrived.

Chinese mainland and Hong Kong stocks rose in tandem on the better-than-expected PMI data. The Hang Seng Index was up 2.8 percent, its highest level since September 2008, while the Shanghai Composite Index was up 3.2 percent in mid-afternoon trade.

"The Chinese economy is recovering, and the May PMIs have further proven that this argument is correct," said Feng Yuming, an analyst with Orient Securities in Shanghai.

But Feng said the export sector remained weak despite the slight improvement in the export orders sub-indexes.

"We can only say the situation is not getting worse," he said.

Chinese appliance and top TV maker TCL Corp said on Monday it expects its sales to grow by at least 7 percent this year to more than 40 billion yuan ($5.9 billion) as it targets the country's increasingly rich consumers.

The government's policy of encouraging home appliance purchases in rural areas is helping domestic sales, but overseas demand continues to sputter, TCL vice president He Chengming told Reuters while in Taiwan Province for a PC trade fair.

The CLSA survey showed few signals of weakness and signalled that the industrial sector is on track for a sustainable recovery, said Andy Rothman, an economist with CLSA in Shanghai.

Rothman noted that the overall new orders sub-index rose strongly for the second straight month in May, to 53.4 from 50.9, driven mainly by healthy domestic demand.

Companies also continued to draw down their inventories of finished goods, suggesting that output growth could be maintained in the months ahead.

"But we want to repeat one point we made last month: it is unrealistic to expect the recovery to continue on an uninterrupted path upwards," he said in a note to clients.

Personal Opinion .:

Growth in China has been amasing over the last couple of quarters in comparison to the rest of the world and most of all the recovery of the stock markets have been astouding .

Some of us have reported here articles anticipating a correction yet the markets keep climbing at a frantic pace , at an unsustainable pace actualy and as the climb get steeper a correction seems likelier .

I for one more then most have been enthousiastic about China's recovery mostly because they owe nothing and their stimulus package is aimed mostly at large infrastructure programs and national consumption growth, while at the same time investing in low price commodities and long term deals with foreign countries .

In simple terms they use this crisis wisely to their advantage using their money as capitalism advocates in such a situation .

But i think one of the reason for their actual success comes from their particular long term socio-political evolution , what i mean by that is the particular discipline to wich chinese people have been used to , over tthe last decades of communism have pushed the people across China to pursue their government's recent propaganda to go out and spend in order to stimulate the economy , China as a whole acted in their best interest an in doing so in the world's economy's best interest .

5 or 6 months ago most experts and economists across the planet expected growth much lower then the actual growth in China as IMF for exemple predicted , but China by doing this " miracle " might be inducing a false look of things in the world's hope on recovery and while it might still last a while , by doing so it might provoke some more " violent " corrections in the months ahead .

No markets can sustain 2% or 3% climb on a weekly basis for long , and while political activism encourages the climb , it's still a matter of time before the markets retrieve under fear reactions , and even if the US market did'nt take full advantage of the positive impulse induced by the Chinese markets and economy it might well be the worst hit when comes a correction because of the fundamental weaknesses perceived because of the US indebtedness .

A month ago i expected the Dow and TSX to climb 1000-1500 pts. when it gets there if it does for the Dow anyways , then i would expect it to be the near end of this bear recovery .

For what it's worth i expect it around the end of summer when we start thinking about the US fiscal year end , and fears of next year start to scare people , then even Chinese markets will get the jitters and i believe that's where it will start ' cause everybody is whatching China grow and the US debt as siemese twins .

I also believe most commodities will keep climbing until then 'cause they are perceived not only as being woth more as the economy points towards growth but also as a sort of insurance policy since we know that they are getting scarcier considering the world's population and it's growth .

Precious metals rare earth elements and PGM should thrive no matter what . This is just an opinion to be debated or antagonise based on my particular perception , i welcome your opinion and criticism .

Tec