Rise in China's PMI May Show Bottoming Economy

China's official purchasing managers' index (PMI) for January rose to 45.3 from 41.2 in December and a record low of 38.8 plumbed in November, the China Federation of Logistics and Purchasing (CFLP) said on Wednesday.

CNBC.com

A reading over 50 indicates an expansion of activity in the manufacturing sector while one below 50 suggests contraction.

New orders, including those for exports, and production rose strongly. The only two sub-indexes to decrease were stockpiles of finished products and employment.

Zhang Liqun, a government economist, said the survey pointed  to a recovery in the economy this quarter. "The January PMI indicates that China's economy is gradually  bottoming out," Zhang said in a commentary for the federation.

The government's 4 trillion yuan ($585 billion) stimulus plan had started to have a positive impact on business, which was booking more orders for capital goods, he added.

Moreover, banks extended about 1.2 trillion yuan ($175 billion) in new loans in January, a monthly record, in response to government calls to lend more to halt the economy's decline, the China Securities Journal reported.

China's Central Bank Sees Positive Economic Signs

Central bank governor Zhou Xiaochuan added in remarks published on Wednesday, that China's pump-priming has had an initial positive impact, although the overall state of the economy still needs monitoring.

Bank lending grew sharply last month, while the year-on-year rate of industrial production growth edged up after several months of steep declines. "According to the economic figures for December, the domestic stimulus policies have achieved initial results," Zhou told the Financial News, the mouthpiece of the People's Bank of China.

He said China would not allow big swings in the exchange rate of the yuan, which the PBOC has kept pinned in a tight band against the dollar since last July, when it abruptly halted a steady three-year rise in the currency.

The international financial crisis was an important factor in the central bank's thinking about the exchange rate, Zhou said, adding that China's foreign exchange policy would be different than in normal economic times.

"The yuan's exchange rate is kept basically stable at a reasonable and balanced level, and there should be no big rises or falls," Zhou said.

Zhou's comments on the economy were similar to those of Premier Wen Jiabao, who said in Britain at the weekend that he had seen signs of a revival in the Chinese economy in the last 10 days of 2008.

Wen said China would inject additional stimulus if necessary on top of the 4 trillion yuan ($585 billion) spending plan it unveiled on Nov. 9.

The China Securities Journal reported on Wednesday that a surge in bank loans in December, triggered by government calls for banks to step up lending, carried over into the new year.

The paper said new loans in January may have exceeded 1.2 trillion yuan ($175 billion), a monthly record.

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In another sign of economic green shoots, China's official purchasing managers' index for January rose to 45.3 from 41.2 in December, the China Federation of Logistics and Purchasing (CFLP) said on Wednesday.

The index remained below the no-change line of 50, indicating that conditions are still deteriorating for manufacturers, but it pulled further away from the record low of 38.8 plumbed in November, when the global economy ran into a wall.

"On one hand, we will stimulate the domestic economy to maintain stable but rapid growth; on the other hand, we will enhance international financial cooperation to handle the crisis jointly with others," Zhou said.

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