It's not just the Chinese government saying factory activity is improving

REUTERS/Anthony Devlin

Confirming the strength in the government’s official figures, activity levels for small and medium-sized manufacturing firms in China improved at the fastest pace in over two years in October, according to the latest Caxin-Markit manufacturing PMI.

The index rose by 1.1 points to 51.2, leaving it at the highest level seen since July 2014.

The PMI measures changes in activity levels for smaller Chinese manufacturers from one month to the next. A figure above 50 indicates that activity levels are improving while a sub-50 reading suggests they are deteriorating.

In a nutshell, the higher the number the better.

REUTERS/Anthony Devlin

The key difference between this survey and that released by China’s National Bureau of Statistics is that it is focused on smaller manufacturers, not the giants that are often dominated by state-owned enterprises.

Here’s Markit’s take on the October result:

Chinese manufacturers signalled an improvement in growth at the start of the fourth quarter, with output expanding at the quickest rate in over five-and-a-half years amid a rebound in new order growth. Stronger demand appeared to be led by improved domestic orders, however, as the level of new export sales fell slightly over the month. Meanwhile, companies cut their staff numbers at the slowest pace in 17 months, while backlogs of work continued to accumulate. Inflationary pressures picked up sharply in October, with input cost inflation accelerating to its fastest since September 2011 and output charges rising to the greatest extent since February 2011. 

It’s very much the same that was seen in the official PMI report, released earlier in the session.

Output was strong, domestic orders outpaced those from abroad, job shedding slowed while inflationary pressures grew.

That all points to an economy that is performing well right now, and perhaps one that no longer needs additional fiscal stimulus in order to bolster growth.

Financial markets are largely unchanged following the release of the report, although, signaling some doubt over the prospect of continued fiscal support, Chinese commodity futures have weakened from their opening levels.

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