China to edge out US as world's largest manufacturer

International A strong recent series of data from China has reopened the debate about when the country will overtake the US as the world's biggest manufacturer.

BEIJING // Strong bank lending and continued injections from China's 4 trillion yuan (Dh2.15tn) stimulus package kept recovery in the world's fastest-growing economy on track last month, with its manufacturing industry showing signs of remarkable health. The CLSA China Purchasing Managers' Index (PMI) rose to a seasonally adjusted 52.8, the highest level in a year, and up from 51.8 in June, CLSA said after releasing its report. "Manufacturing activity continues to accelerate and, importantly, orders growth is being driven by the domestic economy," said Eric Fishwick, the group's head of economic research. A strong recent series of data from China has reopened the debate about when the country will overtake the US as the world's biggest manufacturer. IHS Global Insight said China might overtake the US as the world's factory by 2015, compared with its previous estimate for 2016 or 2017. One fifth of all goods in the world were made in the US in 2007, compared with 12 per cent in China, but the gap is closing fast. Years of focusing on the services sector, along with the global downturn, mean US manufacturing is shrinking while China's factories keep growing, or at least until hit by the downturn. The China Federation of Logistics and Purchasing, a government-backed index that was released on Saturday, also showed manufacturing grew this month, the fifth consecutive rise, to 53.3 from 53.2 in June. The CLSA survey indicated manufacturing grew for a fourth month. "Output and input prices rose for the first time in 11 months," Mr Fishwick wrote. "Export prices lag, another sign of China looking inwards for growth." The improvement in the PMI, which has risen more than 10 index points since the start of the year, pointed to a further acceleration in the recovery of the Chinese manufacturing sector, CLSA said. Firms generally attributed output growth to continued gains in new business and further signs of economic recovery. Volumes of new work received rose at the fastest rate for 14 months in July, a noticeable improvement compared with the steep declines of late last year and the start of this year. The news that economic recovery was on a solid footing boosted Chinese stocks, which climbed 1.48 per cent to a 14-month closing high yesterday. Strong orders growth encouraged investors to buy in the power, steel and oil sectors, and the benchmark CSI 300 Index is up almost 90 per cent this year. A rising stock market, coupled with a recovery in the property sector, has prompted fears of bubbles and an accompanying rise in inflation. Banks have extended US$1 trillion (Dh3.67tn) of new loans in the first six months of the year, triple the amount a year earlier. There were also signs that better business conditions are feeding into higher recruitment, and manufacturers hired workers for the second consecutive month in July. While still low, hiring was at its strongest for 14 months. A number of those contributing to the research reported the global economic slump was still having a negative effect on export sales, but they were not falling as noticeably as before. An export-order index stayed above 50 for a second month. The level was 50.2, down from 50.9 in June. China's economy grew by 7.9 per cent in the second quarter, up from 6.1 per cent in the first quarter, mainly as a result of huge government spending to offset the global crisis. [e-mail]