China official factory PMI points to steady growth revival

Workers ride on an motor rickshaw through an aluminium ingots depot in Wuxi, Jiangsu province September 26, 2012.

Credit: Reuters/Aly Song

By Lucy Hornby

BEIJING | Mon Dec 31, 2012 10:08pm EST

BEIJING (Reuters) - China's official manufacturing purchasing managers' index held steady in December at 50.6, matching November's seven-month high, as growth in new orders was unchanged and the pace of output softened marginally.

With the main index above 50 for three straight months, the survey indicates that China's vast factory sector is expanding. The official PMI was released a day after a similar survey by HSBC suggested manufacturing activity at its strongest since May 2011.

Together the surveys support a growing consensus that economic activity in China revved up during October to December, after GDP growth had slowed for seven consecutive quarters to 7.4 percent in the third quarter. That provides a welcome sign for a global economy where both the euro area and Japan are in recession and the United States is struggling for significant growth.

"Output has stayed above the 50-mark, showing that the manufacturing industry appears to maintain growth expectations, but the rate of growth has weakened," the National Bureau of Statistics, which released the data, said in a note.

The official PMI reading was slightly below expectations in a poll of economists by Reuters last week that predicted a rise in the PMI to 51.0.

The survey showed output in oil processing, quarrying and tobacco industries slipped while food processing, auto manufacturing, textiles, steel and electronics all expanded, the bureau said.

A new export orders sub-index fell to 50 from 50.2 in November. A PMI reading below 50 suggests growth slowed, while a number above 50 indicates accelerating growth.

HSBC said its China PMI, which gathers more data from smaller, privately held firms with a strong export focus, rose in December to 51.5, its highest since May 2011.

The HSBC survey showed strong output despite a retreat in a sub-index tracking new export orders. China's export sector, a major source of growth for the economy, must combat slowing demand in its biggest markets and rising wages and costs at home.

China's official PMI generally paints a rosier picture of the factory sector than the HSBC PMI because it focuses on big, state-owned firms. The HSBC PMI targets smaller, private firms. There are also differing approaches to seasonal adjustment between the two surveys.

INVESTMENT

Some analysts caution that the pickup in economic activity in recent months may reflect renewed investment spending, rather than the consumer activity that policymakers acknowledge is needed to rebalance the economy.

"It's pretty clear that it's more driven by infrastructure and increasingly housing, that's driving heavy industry," said Zhang Zhiwei of Nomura International, speaking on Monday.

Rising land prices have prompted widespread expectations that the real estate market will be revived by an investment-driven recovery that would offset weak export markets, even though the central government had pledged to maintain investment and purchasing restrictions to try to control prices.

Railway spending delayed from earlier in 2012 was being rushed out before the end of the year, and rising prices for land purchased by state-owned developers could point to a relaxation in property market curbs that has yet to be made official, Zhang argued.

Steel futures recently hit a five-month high, after a dismal year in which lackluster demand contributed to overcapacity at debt-ridden mills and traders.

China was expected to achieve economic growth of 7.7 percent in 2012, forecasts in a benchmark Reuters poll show. That would mark the slowest full-year expansion since 1999.

While that is way above the world's other major economies, it is below the roughly 10 percent annual growth in China seen for most of the last 30 years.

The government has relied on fine-tuning its policy settings to try to combat the worst downturn China has faced since the 2008-2009 global financial crisis, studiously avoiding any hint of repeating a 4 trillion yuan ($640 billion) stimulus package it launched back then, which led to a debt-fuelled spending binge by local governments.

Measures to boost growth included reducing bank reserve levels and interest rates. More lately, they included injecting liquidity into the financial system through money market operations and accelerating approval of infrastructure projects.

The head of the influential Development Research Centre called for appropriate base money growth in 2013, including more cuts in banks' reserve requirement ratios (RRR), and a wider floating range for the yuan to make it more flexible, in comments published on Monday.

The central bank reiterated on Monday that China would stick with a prudent monetary policy in 2013, the latest sign that Beijing will not change policy direction when the new government takes over this year.

(Reporting by Lucy Hornby: Editing by Neil Fullick)

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China to keep prudent monetary policy in 2013: central bank

China's Central Bank Governor Zhou Xiaochuan answers a question during a news conference held on the sidelines of the18th National Congress of the Communist Party of China (CPC), in Beijing November 11, 2012.

Credit: Reuters/Jason Lee

BEIJING | Mon Dec 31, 2012 7:03am EST

BEIJING (Reuters) - China will stick to a prudent monetary policy next year and keep consumer prices stable, its outgoing central bank governor, Zhou Xiaochuan, said on Monday, in fresh sign that Beijing won't be changing direction when the new government takes over in 2013.

Reiterating China's long-stated vow to reduce the level of central planning in its economy and make room for more market forces, Zhou also said China will deepen reforms in its financial sector in 2013.

"In 2013, we will continue to implement prudent monetary policy and make policies more pre-emptive, targeted and flexible," Zhou said in a brief new year address.

"We will keep overall price levels basically stable and promote healthy and sustainable growth of the economy," he said. "We will also further deepen financial reforms and the opening up of financial markets."

Zhou's remarks follows similar comments from China's soon-to-be-retired president, Hu Jintao, who promised that reform of China's economic growth model would be a crucial theme next year.

Hu said in a separate new year address broadcast nationally that China's economy will grow at a balanced and sustainable pace in 2013, whilst noting the challenge from sluggish growth for the world economy.

"Transforming the economic growth model will be a main theme," Hu said, without giving further details. "The trend of weak global economic growth will continue."

China's leaders have repeatedly promised to encourage domestic consumption and reduce the nation's heavy reliance on exports for growth, a task that has become more pressing due to expectations of prolonged weak demand in developed nations.

Most analysts and academics agree China needs to transform its growth model to allow consumption, not exports and investment, to drive activity.

But there is no clear agreement on how or when China can pursue such changes.

Zhou, who has been head of the central bank since 2003, is set to retire in coming months.

Hu will relinquish office March 5 when China starts its annual parliament meeting, to make room for his successor Xi Jinping.

(Reporting by Aileen Wang and Koh Gui Qing; editing by Jonathan Standing)

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China needs pro-growth policies, reforms in 2013: think tank

Vehicles drive on the 3rd Ring Road through Beijing's central business district, December 17, 2012.

Credit: Reuters/Jason Lee

By Kevin Yao

BEIJING | Thu Dec 20, 2012 6:06am EST

BEIJING (Reuters) - China's economic performance in 2013 needs pro-growth policies and speedier reforms to boost domestic demand in the face of uncertainty in the global environment, a senior economist at the cabinet's think tank said on Thursday.

"We need to focus more on boosting domestic demand," Hou Yongzhi, head of the development of strategy and regional economy of the Development Research Centre (DRC), the State Council's policy think tank, told a news conference.

"How fast growth is will depend on the external environment. We will achieve an appropriate growth rate, which will not be too low," he said, when asked if China could achieve 8 percent growth in 2013.

China is on course to achieve growth of 7.7 percent in 2012, according to forecasts in the benchmark Reuters poll, the slowest full year of expansion since 1999.

While that is way above the world's other major economies, it is far below the roughly 10 percent annual growth seen for most of the last 30 years.

Weakness in the external environment remains a key drag on an economy in which exports generated 31 percent of gross domestic product in 2011, according to World Bank data, and where an estimated 200 million jobs are supported by foreign investment, or in factories producing for overseas markets.

Hou said China's economic potential was bolstered by companies moving up the productivity value chain and the process of urbanization that remained a key driver of growth.

China's urbanization rate may have reached 51.3 percent in 2011, but that remains 10-20 percentage points lower than in developed countries, he said.

Three decades of rapid industrialization and urban investment have lifted hundreds of millions of Chinese out of rural poverty and fuelled China's rapid rise to become the world's second-biggest economy, turning in average annual growth of around 10 percent for the last 30 years.

But skeptics say that the investment-driven, export-oriented model has created massive over-capacity and requires an urgent shift towards domestic-led consumption if China's transition into a truly rich and sustainably expanding - rather than simply vast - economy is to be achieved.

APPROPRIATE GROWTH

"What we need is appropriate growth. We will not drastically slow down our growth rate in order to change our growth model," Hou said. "Equally, we will not abandon change in the economic model in order to pursue growth."

Hou's news conference followed the government's annual Central Economic Work conference, which ended on Sunday and at which sources told Reuters that an annual growth target of 7.5 percent in 2013 was recommended - the same as in 2012.

Hou said the government would continue to push forward existing reforms, including value added tax (VAT) reforms.

China's Finance Minister, Xie Xuren, separately told a meeting of domestic financial officials on Thursday that deepening fiscal reform was a key priority for his ministry as part of efforts to improve national income distribution.

He also said that China would maintain its proactive fiscal policy in 2013 and cut taxes in selected sectors to boost domestic demand and support the development of smaller firms.

Xie added that strengthening regulation on local government debt - the build-up of which was a consequence of a 4 trillion yuan ($640 billion) fiscal stimulus package to fight the effects of the 2008-09 global financial crisis - would be aided by new risk-alert mechanisms and strict controls on new debt issuance.

Hou said the government would put more stress on the quality of economic growth next year, including urbanization.

Analysts say urbanization remains one of the most difficult parts of China's long-term economic development as it includes changes to the Hukou registration system that classifies 1.35 billion people into two groups - farmers and non-farmers.

Farmers have little of the social security coverage given to town-dwelling non-farmers, but they are entitled to "collectively-owned" land to farm.

The rigid regime means an officially rural resident has no access to education, health and other welfare services in the towns where they live and work, even though they may have been there for years. China has 158 million migrant workers.

"There is no doubt that we need to reform the Hukou system to promote urbanization, but we still need to register the population," he said.

(Additional reporting by Aileen Wang; Editing by Nick Edwards and Jacqueline Wong)

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U.S. slaps duties on China wind towers as high-level talks begin

A worker wearing a gas mask walks past wind turbines outside the assembly workshop of the Guodian United Power Technology Company, at the city of Baoding, Hebei Province June 20, 2011.

Credit: Reuters/David Gray

WASHINGTON | Tue Dec 18, 2012 4:54pm EST

WASHINGTON (Reuters) - The United States on Tuesday pressed forward with plans to slap steep punitive duties on wind turbine towers from China, keeping up friction on the clean energy front as it welcomed a high-level Chinese delegation for trade and economic talks.

The U.S. Commerce Department set final anti-dumping duties ranging from 44.99 to 70.63 percent on utility-scale towers manufactured in China to offset what it said was unfairly low pricing and additional countervailing duties of 21.86 to 34.81 percent to combat Chinese government subsidies.

The department also slapped final anti-dumping duties of 51.40 to 58.49 percent on wind towers from Vietnam.

A U.S. trade panel has final approval over the duties and is expected to vote on the case in late January.

The action came as a Chinese delegation led by Vice Premier Wang Qishan was in Washington for the U.S.-China Joint Commission on Commerce and Trade meeting, a high-level bilateral forum to address barriers to trade and investment.

Wang will attend a dinner on Tuesday evening hosted by U.S. Trade Representative Ron Kirk and Acting Commerce Secretary Rebecca Blank and is expected to meet with U.S. Treasury Secretary Timothy Geithner on Thursday morning.

The main meeting on Wednesday takes place against the backdrop of high-stakes negotiations between President Barack Obama and House of Representatives Speaker John Boehner on a deal to avert the so-called "fiscal cliff" of automatic tax increases and spending cuts that begin early next year.

The White House is also pushing for an increase in the nation's $16.4 trillion statutory debt cap as part of any deal. The U.S. Treasury expects to reach the debt ceiling by year-end and will likely run out of options to free up more borrowing capacity by sometime in February, risking a potential default.

China is the United States' largest creditor, giving it a deep interest in Washington's budget debate.

U.S. companies are not expecting sweeping new commitments from China from Wednesday's meeting, but are hoping for action on longstanding concerns ranging from Chinese barriers to U.S. farm products to policies that pressure U.S. companies to transfer valuable technology to China to do business there.

(Reporting by Doug Palmer; Editing by Dan Grebler)

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