China manufacturing expands on stimulus plan

China’s manufacturing expanded for a fourth month as a 4 trillion yuan ($585 billion) stimulus plan and record bank lending revive the world’s third-largest economy.

The official Purchasing Managers’ Index rose to a seasonally adjusted 53.2 in June from 53.1 in May, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.

The Shanghai Composite Index rose above 3000 points for the first time in a year, copper gained and the yen fell as the report added to signs that the global economy may be over the worst of its slump. China’s economy may keep improving in the third and fourth quarters, enabling the nation to meet its 8 percent economic growth target for this year, central bank Governor Zhou Xiaochuan said this week.

“China’s recovery is gathering further momentum,” said Lu Ting, an economist with Bank of America Merrill Lynch in Hong Kong. “It has been recovering faster than the market had expected.”

Another PMI, released today by CLSA Asia-Pacific Markets, also showed an expansion.

Shanghai’s benchmark stock index climbed 1.6 percent to 3,006.82 as of 2:17 p.m. local time. Three-month delivery copper rose 1.7 percent on the London Metal Exchange. The yuan traded at 6.8329 against the dollar from 6.8307 yesterday.

‘Gathering Steam’

“Fiscal stimulus projects are gathering steam and everything is going according to plan,” said Sherman Chan, an economist with Moody’s in Sydney. “The pickup in export orders is the most encouraging sign for an economy that’s been very externally dependent.”

An export-order index rose to 51.4 in June from 50.1 in May, expanding for a second month, the government-backed PMI showed. A measure of new orders fell to 55.5 from 56.2.

Output and employment indexes climbed. Input prices jumped as raw-material costs rose.

Growth is likely to continue to improve in June, Zhang Liqun, an economist at the State Council Development and Research Center, said in the statement, describing the economy as in a “preliminary” recovery.

The outlook for China contrasts with that of Japan, where sentiment among large manufacturers rose less than economists estimated in June, signaling the economy may be slow to recover from its deepest postwar recession. An index of confidence climbed to minus 48 from a record minus 58 in March, the Bank of Japan’s Tankan survey showed today in Tokyo.

Lending Boom

In China, the stimulus plan and new loans of 5.84 trillion yuan in the first five months, almost triple lending a year earlier, are driving growth.

“China’s stimulus program is having a demonstrable effect on domestic spending, which has resulted in increased manufacturing activity,” said Jing Ulrich, Hong Kong-based chairwoman of China equities at JPMorgan Chase & Co.

Bank of America Merrill Lynch and JPMorgan raised this week their forecasts for second-quarter economic growth. The former expects 7.6 percent, compared with 7.2 percent previously. JPMorgan increased its forecast to 6.9 percent from 6 percent.

Prices of copper, used for autos and construction, are headed for their biggest six-month gain in 22 years as Chinese buyers boost imports to records to replenish stockpiles.

Higher coking coal prices are adding to evidence that demand for steel is recovering. Fushan International Energy Group Ltd., a producer of steelmaking coal, said last month that it raised prices for the first time since January.

China’s lending boom sparked a 32.9 percent surge in urban fixed-asset investment in the first five months, the fastest growth in five years. New loans in June may exceed 1 trillion yuan, triple lending in the same month a year earlier, China Business News reported June 30.

Source: Bloomberg

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