The author is ANZ Greater China chief economist Li-Gang Liu
China’s official PMI rose to 51.4 in October, surprising slightly on the upside, suggesting that the economy is still in an expansion mode.
The output sub-index increased 1.5 percentage point to 54.4, indicating decent growth. However, new orders and new export orders both eased marginally by 0.3 percentage point to 52.5 and 50.4 respectively.
Compared with last year, the central government spending pattern seems to be proceeding at a slower pace this year. This may indicate that China’s growth profile will likely be more stable than last year as mirrored by the small increase in today’s PMI.
Looking ahead, the recent liquidity tightness has posted a downside risk to the fourth quarter’s GDP growth. While June’s "cash crunch" is unlikely to be repeated this round as PBoC has started to provide liquidity gradually, the market interest rates could rise as the central bank’s injection has been rather limited so far.
The rising funding costs will eventually be passed onto the corporates, discouraging further investment expansion.
In addition, recent activity data including crude steel suggest that manufacturing output moderated in October as reflected in the declining input prices in the PMI Sub-Index, indicating that headwinds remain in the real sector.
Combining these factors, we hold a cautiously optimistic view over the economic outlook, and maintain our forecast that China’s economy will expand 7.6% this year.
（The article has been edited for clarity)