HSBC China PMI shows industry strong, adding jobs

BEIJING (Reuters) - Chinese factories ramped up both output and jobs in September to meet a fresh increase in orders, showing the country's recovery is on track, a survey released on Wednesday showed.

HSBC's China Purchasing Managers' Index (PMI) came in at 55.0, easing only slightly from August's 16-month high of 55.1.

It was the sixth month in a row that the index, compiled by British research firm Markit, has been above 50 -- the level that marks the difference between expansion and contraction in China's vast manufacturing sector.

"Although the headline PMI remained broadly unchanged from the previous month, there was a marked expansion of manufacturing employment in September," Qu Hongbin, chief China economist with HSBC in Hong Kong, said in a statement.

Production growth slowed a touch but remained robust, with the seasonally adjusted output sub-index pulling back to 57.6 in September from a 22-month high of 58.4 in August.

Responding to the increase in business, manufacturers added jobs at the fastest pace in 25 months.

New orders continued to grow quickly, signalling that the recovery in demand from both domestic and external sources was on track, Qu said.

"Rising employment in the manufacturing sector is even more encouraging because it suggests that China's infrastructure-led recovery is starting to spread over to the consumer sector," Qu said.

The central bank voiced caution on Tuesday that the rebound in the world's third-largest economy is not yet on a solid footing.

But the message from surveys of executives is that the government's 4 trillion yuan ($585 billion) stimulus programme and ultra-loose monetary policy are succeeding in generating confidence.

A companion PMI for September, produced for the National Bureau of Statistics, is due to be issued on Thursday at 0100 GMT. It rose to a 16-month high of 54.0 in August.

(For a graphic on the PMIs and industrial output growth, click here)

DOMESTIC DEMAND LEADS

The new orders sub-index suggests continued expansion in domestic demand, in part because of an increase in housing construction, said Jing Ulrich, chairman of China equities with JPMorgan in Hong Kong.

While export orders increased at their second-fastest rate in 27 months, overall new orders were even stronger.

"The follow-on effects of greater property investment range from increased demand for building materials to higher consumption in the form of household purchases," she said in a note to clients.

Details of the survey suggested many sectors are coming up against capacity constraints as sales increase: backlogs of unfinished work rose for the sixth straight month.

However, the State Council, or cabinet, said it was concerned that industry was expanding too rapidly and laid out detailed plans to curb overcapacity in a broad range of sectors.

"What especially requires our attention is that it is not only traditional industries such as steel and cement that suffer from productive overcapacity and are still blindly expanding," it said in a notice issued late on Tuesday.

"New industries such as wind power equipment and silicon are also showing signs of redundant construction," it said.

Still, Ulrich said the PMI report boded well for continuing official support for the economy, even if Beijing reins in some specific industries.

"Broad-based macroeconomic tightening will only materialise with greater inflationary pressure and a significant recovery in exports," she said.

(Reporting by Jason Subler; Editing by Alan Wheatley)

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