The figures, which indicate expansion in the country’s manufacturing sector, prompted some analysts to say the pace of the recovery in China might be quicker than previously forecast and that the People’s Bank of China (PBOC) will refrain from any big steps to spur growth.
The official PMI data, released by the National Bureau of Statistics (NBS), rose to 50.2 in October from 49.8 in September.
“By rising above 50, the theoretical dividing line between expansion and contraction, this quasi-official PMI reading lends further support to our recent calls on green shoots and growth revision,” Bank of America Merrill Lynch analysts Ting Lu and Larry Hu said in a market note.
“We believe that markets could even underestimate the pace of recovery of year-on-year industrial production and GDP growth by underestimating the impact of the base effect,” they wrote.
The analysts raised their growth forecast for fourth-quarter GDP to 7.8% from 7.5% and for the whole of 2012 to 7.7% from 7.6%. The revision for 2013 was even bigger, with growth of 8.1% now seen for next year from a previous estimate of 7.6%.
China’s manufacturing PMIs “suggest that there now might be some upside” to Danske bank’s forecast of 8% GDP growth in the fourth quarter, the bank’s senior analyst Flemming Nielsen said.
He noted that the HSBC final reading of manufacturing PMI was revised “significantly higher,” to 49.5 from the flash reading of 49.1 which briefly lifted Asian and European stocks when it was released earlier this month. NEW ORDERS IMPROVE
The final reading of the HSBC manufacturing PMI – which measures data from smaller, more export-oriented companies – showed that the new orders component improved in October to 51.2 from 47.3 in September.
“This is the highest level since October last year,” Nielsen said. “The significant upward revision of the HSBC manufacturing PMI indicates that late responders have been substantially more positive than early responders suggesting sentiment has been improving throughout October.”
“It is now relatively safe to say that GDP growth measured by year-on-year growth bottomed out in the third quarter,” he added.
Capital Economics analysts also believe that the improvement may be greater than the PMI suggests, as the measure is weighed down by seasonal factors at this time of the year.
However, the recovery is relatively slow compared with China’s usual page of growth, Capital Economics analysts wrote in a market note.
“The PMIs have improved relative to a couple of months ago but this has just returned them to where they were around the middle of the year. In other words, China's manufacturing sector has picked itself off the floor but it is not moving with anything like the speed we've been used to over the last few years,” they said.
The employment component of the official PMI increased to 49.2 from 48.9. Bank of America Merrill Lynch’s analysts noted that the adjustment in the labour market “usually lags behind economic conditions, as firms are reluctant to cut payrolls in the early stage of a slowdown, and are also slow to increase hiring in a recovery.”
“We expect that the current labour market could ensure that Beijing keeps policy easing/stimulus in supporting growth,” they added.
But the stimulus or easing will not be substantial, Danske bank’s Nielsen said, adding that there might be a cut in the PBOC’s reserve requirement ratio, “but not imminent.”
On November 8, China’s Communist Party will hold its 18th Congress where a once-in-a-decade leadership change will take place.