UPDATE 3-Chinese manufacturing snaps out of slowdown

* Official Aug PMI rises to 51.7 (forecast 51.8) from 51.2

* New orders 53.1 vs 52.7; inventories 46.9 vs 49.9

* HSBC PMI rises to three-month high of 51.9 from 49.4

* Analysts cautiously optimistic; Asia shares, metals rise
(Adds NDRC statement in paras 12-13)

By Zhou Xin and Alan Wheatley

BEIJING, Sept 1 (BestGrowthStock) – China’s manufacturing economy
staged a moderate rebound in August after slowing for several
months under the onslaught of government measures to rein in
credit and deter property speculation.

Despite encouraging signs of stabilisation in a pair of
business surveys released on Wednesday, analysts cautioned that
the robust domestic economy would have to battle the headwinds
of soft external demand, especially from the United States.

“This reconfirms our long-held view that China is
moderating rather than melting down,” said Qu Hongbin, chief
economist for China at HSBC.

He was commenting on a rise in the bank’s purchasing
managers’ index (PMI) to a three-month high of 51.9 in August
from 49.4 in July. A PMI produced by the China Federation of
Logistics and Purchasing (CFLP) also rose, to 51.7 from 51.2.

Investors cheered the news. MSCI’s index of Asia Pacific
stocks outside Japan rose 1.9 percent (.MIAPJ0000PUS: ), while
metals prices got a lift in anticipation of stronger Chinese
demand. [ID:nSGE67U0DI]

“After the run of weak data from the United States through
August, the Chinese numbers were a breath of life for the start
of the new month,” a metals dealer in Perth said. [MET/L]

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a breakdown of the official PMI [ID:nBJB003928]

For details of HSBC’s PMI [ID:nBJL002061]

For a graphic, http://link.reuters.com/gaw58n

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The increase in the official PMI was close to the median
forecast of 51.8 in a Reuters poll. [ID:nTOE67Q05H]

A figure above 50 denotes expansion; a reading below 50
indicates that business has contracted from the month before.

Both gauges had been trending lower — since January in the
case of HSBC’s and since April for the CLFP’s. This had fanned
concern that Beijing was overdoing its tightening and
throttling an economy that has become a major driver of global
growth.

But Zhang Liqun, a government researcher, said the official
survey of 820 firms across China showed that market concerns of
an abrupt slowdown were unfounded.

“The modest rise in August’s PMI shows that there will not
be a deep correction in the Chinese economy,” Zhang said in a
comment on behalf of the logistics federation, which compiles
the index for the National Bureau of Statistics.

In a sign that Beijing may increase investment to ensure
the recovery stays on track, the National Development and
Reform Commission (NDRC) urged speedy implementation of the
country’s 4 trillion yuan ($585 billion) stimulus package that
was announced nearly two years ago.

“We must accelerate the construction of projects as long as
they are of sufficient quality, and put them in use as soon as
possible,” the NDRC, a powerful agency, said. [ID:nBJA002295]

ORDERS, INVENTORIES BODE WELL

Both surveys showed a decline in the stocks of finished
goods even as orders improved, an indication that manufacturers
will have to ramp up production to meet demand.

“The new orders to finished goods inventory PMI has been a
good indicator of turning points in the cycle over the past two
years,” Ben Simpfendorfer, an economist with Royal Bank of
Scotland in Hong Kong, said.

“It suggests the current correction began in the middle of
the first quarter and was tentatively signaling stabilisation
even before today’s sharp rise in the ratio,” he said in a
reaction to the official PMI.

Bank of America Merrill Lynch agreed that the inventory and
orders data boded well for a recovery in output in coming
months.

With the government mounting a big push to build public
housing, the bank reaffirmed its full-year GDP growth forecast
of 10.1 percent, up from 9.1 percent in 2009.

But it said weakening growth in the United States and Japan
would act as a drag on the economy and could prompt Beijing to
slow the pace of the yuan’s rise.

According to HSBC’s survey, new export orders fell outright
in August for the third month in a row.

Brian Jackson with Royal Bank of Canada in Hong Kong said
it was too soon to celebrate the signs of stabilisation.

“We expect China will have a relatively moderate slowdown
over the second half of 2010, but weaker external demand from
the United States and Europe still represent a significant
downside risk in coming months,” he said in a note.

Several economists also expressed concern at a sharp rise
in input prices in both surveys.

But He Yifeng, an economist with Hongyuan Securities in
Beijing, said it was also evidence of stronger economic
activity.

“As businesses see economic growth picking up, they will
want to step up investment and this will increase demand for
upstream products and push up prices of inputs such as iron
ore,” he said.
(Additional reporting by Langi Chiang; Editing by Kazunori
Takada)

UPDATE 3-Chinese manufacturing snaps out of slowdown