Stimulus and property drive China’s growth

by Jonathan Adams

Two gauges of Chinese factory output suggest that ongoing fiscal stimulus and rising real-estate sales propped up economic expansion in November, though more of the benefit is flowing to state companies.

China’s official manufacturing purchasing managers index rose to 51.7 last month from October’s 51.2, the National Bureau of Statistics said Thursday. The index has remained above the 50 mark separating expansion from contraction for four straight months. The November reading beat a median forecast of 51.0 by 10 economists polled by The Wall Street Journal.

Official subindexes measuring new orders, production, import prices and export orders all rose, the statistics bureau said.

A competing gauge, the private Caixin PMI, fell to 50.9 in November from 51.2 in October, which was a 27-month high. Economists say the official data tends to better reflect conditions at large state-owned companies while the Caixin measure tends to track smaller, private firms.

China’s official nonmanufacturing PMI, also released Thursday, rose to 54.7 in November from 54.0 in October.

The official PMI surprised on the upside, said OCBC Bank economist Dongming Xie. “Whether on the supply side or the demand side, we’re seeing a return of confidence in the economy.”

“We’ve been able to hold our selling price,” said Tong Fei, a company administrative worker. “That’s allowed us to make more profits this year.”

But easy-money policies that put a floor under the economy are likely to worsen China’s longer-term problems, including widespread industrial capacity and rising corporate debt, economists said.

“The key question is whether the recovery is sustainable or not,” Mr Xie said. “Corporate debt and overcapacity are not a one-day story that just go away.”

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