China’s manufacturing activity picks up in November

BEIJING, (AFP) - Manufacturing activity in China accelerated in November despite spiralling raw material costs, two surveys showed Wednesday, fuelling expectations of further interest rate hikes to curb inflation.

The HSBC China Manufacturing PMI, or purchasing manager’s index, rose to 55.3 last month from 54.8 in October as domestic and overseas orders for Chinese-made goods gathered pace.

An official survey released by the China Federation of Logistics and Purchasing (CLFP) rose to 55.2 in November from 54.7 in October.

A reading above 50 indicates the sector is expanding while a reading below 50 means it is contracting.

Both surveys showed the cost of raw materials used in manufacturing rose sharply last month, with CLFP saying the input price index rose 3.6 percentage points from the previous month to a two-year high of 73.5. Manufacturers reported passing on the higher input costs to customers by hiking factory-gate prices for products, HSBC chief economist Qu Hongbin said in a note.

“The stronger reading of the November manufacturing PMI, especially the faster rise in input prices... is likely to translate into concern about inflation,” Qu said.

“We expect Beijing to step up its efforts of quantitative tightening and to hike interest rates by 25 basis points in the coming months.”Royal Bank of Canada senior strategist Brian Jackson said the manufacturing data showed more drastic measures would be needed to curb spiralling prices.

“This provides further evidence that price pressures are uncomfortably strong and will reinforce the case for further and more urgent policy normalisation,” Jackson said in a note.

Jackson said he expected the central bank to hike rates this month followed by further increases in 2011.

The People’s Bank of China in October raised one-year lending and deposit rates for the first time in nearly three years as Beijing ramped up efforts to contain rising inflation and cool the red-hot real estate market.

In recent weeks, Beijing has introduced other measures to combat soaring prices and ease consumer concerns over surging food costs.

Prices of some vegetables have rocketed more than 60 percent this year and inflation hit a two-year high of 4.4 percent in October, above the government’s official full-year target of 3.0 percent.

Beijing has ordered a range of steps to ensure supplies of key goods, offered financial help to the needy, launched a crackdown on speculators and vowed to impose price caps if necessary.

Rising input costs, although not the major driver of inflation, “could add pressure to the consumer price index (CPI),” said Lu Ting, China economist at Bank of America-Merrill Lynch.