China's vast manufacturing sector picked up moderately in October, snapping a three-month contraction and underscoring the resilience of the world's second-largest economy backed by robust domestic demand.
The rise in the HSBC's China Flash Purchasing Managers' Index could soothe persistent investor fears of an abrupt slowdown, or hard landing, in China's economy that could send an already fragile world economy into a recession.
The PMI, designed to give an early snapshot of the month's factory activity, rose to 51.1 in October from September's final reading of 49.9, surpassing the 50-point level for the first time since July.
"Thanks to the pick-up in new orders and output, the headline flash PMI rebounded back into expansionary territory during October, marking a steady start to manufacturing activities in the four quarter," said Qu Hongbin, China economist at HSBC.
"Meanwhile, inflation components within the PMI results confirmed stable output prices growth and slower input price inflation. All these data confirm our view that there is no risk of a hard landing in China," he added.
Mr Qu expects annual industrial output growth to hover around 13 percent in October and the central bank to keep monetary policy stable in the coming months.
China is vulnerable to fading demand from the United States and Europe, its two biggest export markets, but robust domestic demand - consumption and investment - and solid export growth to emerging markets have provided some insulation.
The worst for China's economy and the rest of the world could come if Europe fails to contain the sovereign debt crisis, said George Worthington, chief economist for the Asia Pacific at IFR Markets, a Thomson Reuters unit.
"But domestic demand conditions seem solid and enough to keep the economy growing by around 9 per cent, judging from the rebound in the PMI from a low of 49.3 back in July," he said.
China's annual economic growth slowed to 9.1 per cent in the third quarter from 9.5 per cent in the second quarter and 9.7 per cent in the first. Most analysts believe the data point to an economic soft landing, rather than a crash.
In comments published yesterday, premier Wen Jiabao said the government will make job creation a more urgent priority in the face of slowed economic growth and weakened exports.
In PMI releases around the world, the 50-point level typically demarcates expansion from contraction in factory output. HSBC believes a PMI reading of 50 in China implies a 12-13 per cent annual rise in industrial output and gross domestic product growth of around 9 per cent.
Both new orders and new export orders sub-indices rose above the 50-point mark in October. But it's too early to tell whether the rebound in export orders will be sustained given the gloomy global outlook.
