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China manufacturing accelerates in October, but demand tepid: HSBC

China's manufacturing growth accelerated to a three-month high in October but domestic and foreign demand were tepid.

[BEIJING] China's manufacturing growth accelerated to a three-month high in October but domestic and foreign demand were tepid, HSBC said Thursday, calling for further policy support to boost the world's second-largest economy.

The British bank's preliminary purchasing managers index (PMI) came in at 50.4 this month, above the 50-point level that separates expansion and contraction and the strongest since July's 51.7.

The index tracks activity in China's factories and workshops and is a closely-watched indicator of the health of the economy, a key driver of global growth.

Qu Hongbin, HSBC economist in Hong Kong, cautioned that despite the pickup in the headline figure, downside pressures remained given slowing internal and external demand growth and rising deflationary risks.

"While the manufacturing sector likely stabilised in October, the economy continues to show signs of insufficient effective demand," he said in the release announcing the figure, adding that "further policy easing" was needed.

The Chinese economy expanded 7.3 per cent in the third quarter, lower than the 7.5 per cent expansion in the previous three months and the slowest since the depths of the global financial crisis, the government announced Tuesday.

Beijing's 2014 growth target is about 7.5 per cent, the same as last year, though officials including Premier Li Keqiang have openly stated a slightly slower increase is tolerable as long as the job market remains resilient.

The HSBC survey, compiled by information services provider Markit, showed its employment component contracting in October, but at a slower pace than September.

Chinese authorities have since April used a series of limited measures to underpin growth, including targeted cuts in reserve requirements - the amount of funds banks must put aside - and a 500 billion yuan (US$81.7 billion) injection into the country's five biggest banks for re-lending.

Analysts remain divided over whether the central People's Bank of China might resort to an across-the-board reserve requirement cut or even slashing interest rates.

"Healthy employment and wage growth, along with concerns over mounting credit risks, mean that policymakers will avoid rolling out significant stimulus in response to the continued slowdown," Julian Evans-Pritchard, an analyst with research firm Capital Economics, wrote in a note Thursday after the PMI release.