BEIJING, Dec 3 (Reuters) - The pace of activity in China's
vast manufacturing sector quickened for the first time in 13
months in November, a survey of private factory managers found,
adding to evidence that the economy is reviving after seven
quarters of slowing growth.
The final reading for the HSBC Purchasing Managers' Survey
(PMI) rose to 50.5 in November from 49.5 in October, in line
with a preliminary survey published late last month. It was the
first time since October 2011 that the survey crossed above 50
points, the line that demarcates accelerating from slowing
The final HSBC reading follows a similar survey by the
National Bureau of Statistics (NBS) released this weekend, which
showed the pace of growth in the manufacturing sector
quickening. The official PMI rose to a seven-month high of 50.6
for November, from 50.2 in October.
"This confirms that the Chinese economy continues to
recover gradually," HSBC's chief China economist Hongbin Qu
An official PMI survey of China's non-manufacturing sectors
also ticked up, to 55.6 in November from 55.5 in October, led by
expanded activity in construction services. But growth in air
and rail transport and food and beverages both slowed.
While a recovery in growth appears possible, there are
troubling signs that China is still relying too much on
state-led investment rather than the more dynamic private
Growth accelerated for large firms for the third month in a
row, but medium and smaller companies saw a retrenchment, with
the decline more pronounced for the smaller firms, the NBS said
in a not accompanying its official manufacturing PMI survey.
"The improving numbers are mostly because of government
investment," said Dong Xian'an, economist with Peking First
Advisory, referring to the official PMI.
"From the second quarter the government has unleashed a lot
of projects, and that has started to be felt in the economy, but
it's not a very healthy recovery yet."
In another sign that demand remains lacklustre, an HSBC
sub-index for output prices fell despite a rise in a different
sub-index for input prices, indicating that firms are unable to
pass rising costs on to buyers.
"Whilst we feel that the economy has been stabilized through
the short-term, we feel that the manner in which activity has
been revived will retard China's economic reform agenda and make
the transition onto a sustainable footing all the more tricky,"
wrote Xianfang Ren and Alistair Thornton of IHS Global Insight.
Smaller and private firms are still pleading for greater
access to credit and investment incentives, which have gone
disproportionately to the state sector, particularly since the
financial crisis of 2008-2009.
Government intervention to mask debt problems where they do
appear runs the risk of a socialisation of losses, the IHS
Global Insight analysts warned.
"Production can continue (hence contributing to GDP), and
employment can remain tight. Our fear, therefore, is that whilst
activity is resuming, economic efficiency is declining. This has
negative longer-term consequences."
Overall, China's economic health has improved since
September, with an array of indicators from factory output to
retail sales and investment showing Beijing's pro-growth
policies are starting to gain traction.
Output, new orders and new export orders all improved, the
official PMI showed, but a sub-index tracking employment
deteriorated. Private firms generally account for more new jobs
than does the state sector.
China's annual economic growth dipped to 7.4 percent in the
third quarter, slowing for seven quarters in a row and leaving
the economy on course for its weakest showing since 1999.
Given the recent signs of recovery, many analysts expect the
economy to snap out of its longest downward cycle since the
global financial crisis, and start to trend upwards in the
The end of a destocking cycle and a greater pace of
investment are expected to keep driving up domestic demand.
Economists also warn of downside risks from still cloudy
external markets. The European debt crisis and listless U.S.
economy continue to crimp demand from China's two largest trade
China's central bank has moved cautiously in easing monetary
policy to underpin economic growth, wary of reigniting
inflation and fanning property prices which are still high.
It cut interest rates twice in June and July and lowered
banks' reserve requirement ratio by 150 basis points in three
stages since last November, but has refrained from further cuts
since July. The authorities have opted to inject liquidity via
open market operations to pump short-term cash into money
The official PMI generally paints a rosier picture of the
factory sector than the HSBC PMI because the official survey
focuses on big, state-owned firms, while the HSBC PMI targets
smaller, private companies. There are also differing approaches
to seasonal adjustment between the two surveys.