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POLITICAL ECONOMY
China manufacturing activity hits 19-month high
by Staff Writers
Beijing (AFP) Dec 31, 2012


China's manufacturing activity surged to a 19-month high in December, British bank HSBC said Monday, adding to signs of recovery in the world's second-largest economy.

The year's final purchasing managers' index (PMI) from the lender hit 51.5, up from 50.5 in November when the figure returned to growth after 12 consecutive months of contraction.

A reading above 50 indicates expansion in the key sector, while one below signals shrinkage.

The December reading was also better than a preliminary 50.9 announced earlier in the month and marked the fourth straight month-on-month improvement.

"Such a momentum is likely to be sustained in the coming months when infrastructure construction runs into full speed and property market conditions stabilise," Qu Hongbin, HSBC's chief economist for China, said in the release.

The index, compiled by information services provider Markit and released by HSBC, tracks manufacturing activity and is a closely watched barometer of the health of the economy.

Output at factories expanded for the second straight month in December at the fastest pace in 21 months, while total new orders rose at the fastest clip since January of 2011, HSBC said.

China's strengthening manufacturing sector, and improvements in areas including broader industrial production and retail sales, have spurred optimism that the country's economic slowdown has bottomed out.

Economic growth hit a more than three-year low of 7.4 percent in the third quarter to September, though data so far for the fourth quarter has led analysts to expect a pick-up.

Qu said that prevailing conditions and continued government policy support should see the economy grow about 8.6 percent in 2013.

The Chinese government has forecast 2012 economic growth to come in at 7.5 percent, considerably lower than the 9.3 percent recorded in 2011 and 10.4 percent racked up in 2010.

Ren Xianfang, economist with IHS Global Insight in Beijing, said the PMI data confirm the "rebound trajectory" of China's economy.

"Having escaped the hard-landing curse in 2012, the Chinese economy looks to have a better chance delivering a slightly stronger growth in 2013," she told AFP in an e-mail.

She said infrastructure and housing construction would bolster the economy in 2013, "while the external sector's contribution to growth will likely remain minimal or negative".

Indeed, weakness in the global economy -- where Europe is still struggling with its debt crisis and concerns remain over the strength of recovery in the United States -- is seen as a potential hurdle for China's recovery.

Exports for November rose just 2.9 percent year-on-year to $179.4 billion, much lower than market expectations.

New export orders as reflected in the December PMI fell slightly, according to HSBC.

"The external environment remains challenging as we enter 2013," according to a separate analysis by the bank.

"This is reflected not only by the drop in the new export orders readings within the HSBC PMI, but also by fast fading hopes of an effective resolution to the US's fiscal cliff crisis," it said.

"Moreover, European economic fundamentals remain weak."

Political leaders in the US are working against a January 1 deadline to avoid the "fiscal cliff'' -- a punishing package of spending cuts and tax hikes due to take effect on Tuesday that could derail the country's recovery, with knock-on effects globally.

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