By Leslie Hook in Beijing
China’s manufacturing sector grew at its fastest pace in seven months in November, according to a survey that adds to mounting evidence that the world’s second-largest economy is rebounding.
The official PMI [purchasing managers’ index] rose to 50.6 in November from 50.2 in October, signalling slightly faster growth in the crucial manufacturing sector. A reading above 50 in the gauge of industrial activity signals expansion.
Fears about the US fiscal cliff and the eurozone recession have prompted investors to focus more on China as the key engine of global growth. The PMI data reinforce a growing consensus that the Chinese economy is picking up steam.
“The much-feared ‘hard landing’ has been averted,” IHS, an economic consultancy, wrote in a note to clients. “Economic activity is back, and growth has bottomed out.”
China’s economic growth has slowed for seven straight quarters, expanding 7.4 per cent in the third quarter compared with the same period the previous year. The country is on track for its weakest economic expansion in more than a decade, with economists predicting growth of less than 8 per cent for 2012.
In recent months, the government has ramped up spending on infrastructure projects and eased monetary policy to help offset the year-long slump in the housing sector and the impact of weak exports.
As overall investment begins to grow more quickly and the central bank uses aggressive open market operations to boost liquidity, these policies appear to be filtering into the real economy.
Positive signals over the past week included surging industrial profits, and improving fixed-asset investment and industrial production.
Lu Ting, an economist at Bank of America Merrill Lynch, said the improvement in the economy would “support prices of China-related stocks, commodities and currencies”.
A sub-index of the PMI that measures new orders rose to 51.2 in November from 50.4 in October. Export-related new orders rose above 50 for the first time since May, hitting 50.2.
The positive manufacturing data could provide more leeway for China’s new leaders to advance economic reforms needed to rebalance the economy from an investment-dependent, export-oriented model toward more sustainable slower, greener growth.
Alistair Thornton, an economist at IHS, said China’s long-term economic growth would ultimately depend on what reforms the new leadership undertakes.
“Now that the fear of a hard landing and the fear of an unruly transition have both been reduced, markets and the administration have to start looking at the longer term reform issues,” he said. “We haven’t seen any signal thus far that the new administration will be radical in its approach.”