China"s Leaders to Start Reform Summit With Recovery

China’s Communist Party leaders will

enter a policy-making summit this week with the economy on an

upswing, services and manufacturing surveys show.

A non-manufacturing Purchasing Managers’ Index (CPMINMAN) rose to the

highest level this year in October, a government report showed

yesterday. The increase follows faster-than-estimated growth in

two manufacturing indexes last week.

Signs of sustained strength in the world’s second-largest

economy may give President Xi Jinping and Premier Li Keqiang

more confidence in tackling reforms. At the same time, excessive

credit growth, rising local-government debt and weaker export

momentum may cap a stronger recovery from a two-quarter slowdown.

“Growth momentum will still be relatively robust” in the

fourth quarter, said Lu Ting, head of Greater China economics at

Bank of America Corp. in Hong Kong. “The government will tone

down its pro-growth rhetoric but there won’t be a significant

tightening of monetary policy as new leaders still need a stable

economic and financial environment to consolidate their power

base.”

The benchmark Shanghai Composite Index rose 0.2 percent at

10:30 a.m. local time, following a 0.4 percent gain Nov. 1.

Lu estimates gross domestic product will rise 7.7 percent

in the fourth quarter from a year earlier, down from 7.8 percent

in the July-September period.

China’s top party officials will meet in Beijing from Nov.

9-12 to map out a blueprint for reform as the country heads for

its slowest growth in more than two decades.

Balance Growth

GDP will increase 7.6 percent this year, according to the

median estimate of 52 economists surveyed by Bloomberg last

month. That’s down from 7.7 percent in 2012 and the same pace as

1999, which was the weakest expansion since 1990. Growth may

slide to 7.4 percent in 2014, according to the median projection

of 47 analysts.

Premier Li reiterated that the government must balance the

need for economic restructuring with a reasonable pace of growth

to ensure sufficient employment, China National Radio reported

yesterday, citing comments he made at a meeting with academics

and business leaders.

The non-manufacturing PMI rose to 56.3 in October from 55.4

in September, the Beijing-based National Bureau of Statistics

and China Federation of Logistics and Purchasing said yesterday.

A number more than 50 indicates an expansion. HSBC Holdings Plc

and Markit Economics will release a services PMI for October

tomorrow. Their index fell to 52.4 in September from 52.8 in

August.

Too Bullish

“The room for a further improvement in the non-manufacturing PMI is limited so we should still avoid being too

bullish,” Lu said, pointing to a decline in new orders and a

contraction in export orders in yesterday’s report.

A manufacturing index from HSBC and Markit rose to the

highest level since March in October, according to a Nov. 1

report. The federation’s gauge advanced to an 18-month high

driven by faster output, while measures of new orders and export

orders declined.

“Like the manufacturing PMI, activity in the non-manufacturing PMI appears to have run ahead of demand,” said

Ding Shuang, senior China economist at Citigroup Inc. in Hong

Kong, pointing to a 1.8 percentage point drop in the new order

sub-index in yesterday’s report and a widening gap between a

gauge of business activity and new orders.

“Unless demand catches up, this pace of activity expansion

will not be sustainable,” he said.

Sustainable Growth

Xi and Li have indicated that the days of annual GDP

expansion of more than 10 percent are over. The government will

focus on policy changes to support more sustainable growth that

will reduce inequality and doesn’t damage the environment.

Xi said a blueprint for “comprehensive reform” will be

put forward to the third plenary session of the Communist Party

Central Committee, according to a Nov. 2 report from the

official Xinhua News Agency. The nation is transforming its mode

of development and readjusting its economic structure through a

new style of industrialization, urbanization, technology and

agricultural modernization, he said.

The economy is entering a phase of “transformation”

involving a slowdown in growth “from a high speed to a medium-to-high speed,” Li said in September. He has also signaled that

the government’s bottom line for expansion is 7 percent, the

level needed to meet the Communist Party’s target of doubling

per capita income in the decade through 2020.

Elsewhere today in the Asia-Pacific region, Australia’s

retail sales rose more than estimated in September from the

previous month and an inflation gauge by TD Securities and the

Melbourne Institute rose 0.1 percent last month from September.

European PMI

The final reading of a euro-area manufacturing PMI will

probably show that the gauge rose in October from September,

according to economists surveyed by Bloomberg News. The U.S.

will release data on factory orders for September.

Chinese industries including leisure, e-commerce and

transport are becoming a bigger part of the economy, supporting

the government’s efforts to shift the focus of growth away from

investment and exports. Alibaba Group Holding Ltd., China’s

biggest e-commerce company, plans a fivefold increase in the

number of college graduates it hires to 1,000 and may offer them

as much as triple last year’s average pay.

Service industries accounted for about 45 percent of GDP

last year, according to statistics bureau data, up from 41

percent in 2003. The government is seeking to increase the share

to 47 percent by 2015, according to its five-year plan. In the

U.S., services comprise about 90 percent of the economy.

–Nerys Avery, Sarah Chen. With assistance from Sharon Chen in
Singapore. Editors: Nerys Avery, Scott Lanman

To contact the reporter on this story:

Nerys Avery at

navery2@bloomberg.net

To contact the editor responsible for this story:

Paul Panckhurst at

ppanckhurst@bloomberg.net

Enlarge image

Commuters in Wuhan

Tomohiro Ohsumi/Bloomberg

Commuters ride on a bus at dusk in Wuhan. Industries including leisure, e-commerce and transport are becoming a bigger part of China’s economy, supporting the government’s efforts to shift the focus of growth away from investment and exports.

Commuters ride on a bus at dusk in Wuhan. Industries including leisure, e-commerce and transport are becoming a bigger part of China’s economy, supporting the government’s efforts to shift the focus of growth away from investment and exports. Photographer: Tomohiro Ohsumi/Bloomberg

Enlarge image

Central Business District in Beijing

Tomohiro Ohsumi/Bloomberg

China’s top party officials will meet in Beijing from Nov. 9-12 to map out a blueprint for reform as the country heads for its slowest growth in more than two decades.

China’s top party officials will meet in Beijing from Nov. 9-12 to map out a blueprint for reform as the country heads for its slowest growth in more than two decades. Photographer: Tomohiro Ohsumi/Bloomberg

China"s Leaders to Start Reform Summit With Recovery