CHINA S manufacturing grew at the fastest pace in seven months in November, indicating the economy can withstand higher interest rates as price pressures escalate.
The Purchasing Managers Index (PMI) rose to 55.2 from 54.7 in October, China s logistics federation said on its Web site yesterday. That was more than the 54.8 median estimate of 14 economists surveyed by Bloomberg News.
Yesterday s report showed a measure of input prices climbed the most since 2008, reinforcing the case for the central bank to boost borrowing costs again after it lagged behind counterparts from Malaysia to South Korea. Concern that monetary tightening will hamper corporate profit growth spurred an 8 percent sell-off in China s benchmark stock index in the past month.
The risk of a sharp growth deceleration has abated, but all signs are suggesting that inflation may surprise on the upside, said Tao Dong, a Credit Suisse AG economist in Hong Kong. He called the input-price data alarming.
Credit Suisse said yesterday that rates were likely to rise around Dec. 13, when the government would announce the latest price data. In October, the central bank pushed the one-year lending rate to 5.56 percent, the first increase since 2007.
Yesterday s statement also showed gains in indexes for output, new orders and export orders.
The measure of input costs rose to 73.5 from 69.9 in October. Cement prices have risen to a record, China Daily reported yesterday.
Consumer prices may have climbed 4.8 percent in November after October s 4.4 percent gain, which was the biggest in 25 months, according to China International Capital Corp.
Zhang Liqun, a senior researcher at the State Council s Development Research Center, said that while the PMI data showed an improved economic climate, growth would continue to moderate. Leaders meeting in Beijing later this month to set economic policy would also gauge the risk that the debt crisis in Europe, China s biggest market, would curb export demand.
Bank of America-Merrill Lynch said yesterday s data supported its forecasts for the Chinese economy to expand at a 9.3 percent annual pace this quarter and 10.3 percent for the full year.
Premier Wen Jiabao announced Nov. 17 a package of measures to counter inflation, from the threat of price caps for daily necessities to pledges to maintain the food supply by selling State reserves. Cuts announced Tuesday in the prices of some Roche Holdings AG and Bristol-Myers Squibb Co. drugs sold in China may aid his efforts.
The government s campaign to rein in money supply and cool prices also included two reserve-ratio increases for lenders last month, which drained cash from the financial system.
At the same time, the central bank has limited increases in the yuan that could help to counter inflation. While officials allowed appreciation of about 1.8 percent against the dollar in September, since then gains have been about 0.3 percent.
Nomura Holdings Inc. said this week that China was in a solid growth phase even as inflation concerns rise. Citigroup Inc. said that while inflation, mainly driven by food and global commodity costs, was a critical policy worry, the economy was not overheating as it did in 2007-08.
(SD-Agencies)
