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July 26, 2017

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Asian factories show slow recovery

BEIJING/SEOUL -- Big Asian economies are slowly picking up after a year spent battling against global headwinds, according to business surveys and data released on Thursday that showed renewed vim from China's factory sector and a rebound in South Korean exports.

A U.S. factory survey later — closely watched in Asia as a pointer towards export and production trends — is likely to show more evidence of a sluggish recovery with a second straight month of expansion in manufacturing.

The downturn in Britain's manufacturing sector worsened in October as companies received fewer orders and costs rose at a faster pace, reviving worries about the country's fragile recovery.

India, hammered as much by internal politics as the global downturn, also showed signs of a modest revival in manufacturing in a survey released on Thursday.

Data over the past month has shown the health of the global economy remains fragile, with retail sales and the housing market pointing to an improvement in the United States while debt-hobbled Europe remains mired in crisis.

"Overall sentiment is brightening and Chinese orders are suggesting a moderate recovery," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.

The Chinese economy, the motor of global growth in recent years, appears to have gathered pace in October after slowing to its weakest pace in more than three years in the third quarter.

China's official manufacturing purchasing managers' index (PMI) rose to 50.2 from 49.8 in September, just below a 50.3-forecast by a Reuters poll last week and suggesting an acceleration of output that will help lift fourth-quarter GDP growth above the 7.4-percent annual rate recorded in the third quarter.

The U.S. Institute of Supply Management PMI, due at 1400 GMT, is forecast to come in at 51.2, slightly behind September's 51.5 but still above the 50-point line that divides accelerating from slowing activity.

Reports covering the major eurozone countries are due for release on Friday and expected to show a continued contraction.

Beijing has been following a program of pro-growth fine tuning of economic policies for a year and analysts broadly expect that to remain in place when a new leadership line-up at the top of the ruling Communist Party is unveiled this month.

"The return of the PMI above 50 suggests economic momentum has indeed picked up. It indicates the effect of policy easing may have been stronger than the consensus expected," Zhiwei Zhang of Nomura said in a comment emailed to Reuters.

(Related stories on pages 6, 8)

Also on Thursday, the final reading of the Chinese HSBC PMI rose to 49.5 in October from 47.9 in September. The reading was the highest since February and deviated more than usual from the October flash, or preliminary, reading of 49.1 released last week.

The official PMI generally paints a rosier picture of the factory sector than the HSBC PMI as the official survey focuses on big, state-owned firms, while the HSBC survey targets smaller, private firms that have limited access to bank loans.

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