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Chinese factory activity expands at fastest pace in over two years

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According to the latest Reuters report, activity in China's manufacturing sector expanded at the fastest pace in over two years in October thanks to a construction boom, with smaller firms growing more upbeat, suggesting the world's second-largest economy is stabilising and getting on steadier footing.

Chinese factory activity expands at fastest pace in over two years

Signs of a more broader-based recovery will be welcomed by the government amid growing views that a housing rally may have peaked. Much of China's better-than-expected growth this year has been highly reliant on spending by often inefficient state firms as private investment languished.

The official Purchasing Managers' Index (PMI) stood at 51.2 in October, much stronger than September and the highest reading since July 2014.

Economists had expected a far more modest reading of 50.4, in line with the previous month. Levels above 50 indicate an expansion in activity on a monthly basis.

China's economy expanded at a steady 6.7% in Q3 and looks set to hit Beijing's full-year target of 6.5 – 7%, fuelled by stronger government infrastructure spending, record bank lending and a red-hot property market that are adding to a growing pile of debt.

The construction spree has fuelled stronger demand and higher prices for building materials from cement to steel, boosting sales for related companies from engineering firms to property agents. Global construction equipment maker Caterpillar said last week it sees further modest improvement in 2017.

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