China and India factories buzzing, recovery intact

By Aileen Wang and Alan Wheatley

BEIJING (BestGrowthStock) – China’s manufacturing powered ahead in January, providing more evidence of its robust economic health to markets fretting about Beijing’s policy tightening and the dire state of government finances around the world.

A pair of surveys showed on Monday that China’s vast manufacturing industry expanded at close to record pace last month as the world’s third-largest economy continues to lead the global recovery.

India, another emerging power that avoided recession and is coming out strongly from a soft patch, saw its factory sector expanding at the fastest clip in nearly 1- years.

Euro zone and U.S. purchasing managers’ surveys, due later on Monday, are also expected to confirm a pick up in manufacturing in major developed economies after. Russia in January recorded its second expansion in activity in the last 18 months.

South Korean and Australian manufacturing surveys showed improvement too, in part feeding off China’s growth burst in the past quarter that brought it back to its cruising speed of more than 10 percent.

With interest rates at record lows and budgets deficits at multi-year highs after costly crisis-fighting efforts, investors are keen to see any signs that the recovery spurred by massive policy stimulus can carry forward without more public aid.

COSTLY RESCUE

The cost of preventing the global recession from turning into depression will be evident in U.S. budget estimates due at 1500 GMT (10 a.m. EST). The White House will predict a record $1.6 trillion deficit for the fiscal year 2010, a congressional source told Reuters.

Fears that Greece, Portugal and other smaller euro zone countries will struggle with servicing their heavy debt have also soured market sentiment, prompting investors to shun risky assets and driving stock markets lower.

Beijing’s steps to cool buoyant credit growth to prevent overheating also fanned concerns that they may prove too heavy-handed and derail the upturn at a time when other big economies have yet to regain their momentum.

Chinese bank lending slowed sharply in the final 10 days of January, according to a newspaper report, but there was little evidence yet in Monday’s data that the crackdown was hurting activity.

An index based on an official survey of purchasing managers last month eased from a 20-month high in December but remained firmly in expansionary territory, while an index derived from a companion poll by HSBC scaled an all-time high.

Both reports also showed a further rise in cost pressures leaving the authorities little choice but to keep tightening policy after they have steered debt yields higher at auctions, raised banks’ reserve requirements and reined in lending.

MORE TIGHTENING

“Industrial activity continues to accelerate, implying stronger GDP growth in the first quarter. But rising input and output prices also point to greater inflationary pressure, which will likely prompt more tightening measures in the coming months,” said Qu Hongbin, chief economist for China at HSBC.

Markets found little comfort in the PMI data, focusing instead on the likelihood of further policy tightening.

“Fears about stronger monetary tightening remained the key negative factor today,” said Li Wenhui, analyst at Huatai Securities in Nanjing.

The official survey also showed a rise in imports, a welcome news for several Asian economies, which heavily rely on the upturn in Chinese demand for a recovery in their exports.

In fact, South Korea, Asia’s fourth-largest economy reported that its exports to China jumped 88 percent year-on-year in January, even as overall export data disappointed markets and month-on-month growth was moderating.

Investing Analysis

China and India factories buzzing, recovery intact