China Manufacturing May Expand at Faster Pace This Month

China’s Manufacturing May Expand at Faster Pace in December
An employee works on the installation of a motor for construction machinery in Sany Heavy Industry Co.'s assembly shop in Changsha, Hunan Province, China. Photographer: Nelson Ching/Bloomberg

China’s manufacturing is expanding at a faster pace this month, suggesting the factory recovery in the world’s second-biggest economy may withstand a slowdown in exports.

The December preliminary reading was 50.9 for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics. That compares with the 50.8 median estimate in a Bloomberg News survey of 12 economists and a final reading of 50.5 for November, the first time in 13 months it was above the expansion-contraction dividing line of 50.

Chinese stocks had their biggest gain in three years as the report bolstered confidence in the economic recovery even as November’s trade and new loans trailed estimates. The data add to signs of a strengthening rebound including factory output and retail sales, which may smooth the transition to China’s new leadership headed by Xi Jinping.

“China’s ongoing growth recovery is gaining momentum mainly driven by domestic demand conditions,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in a statement. At the same time, a drop in new export orders and last month’s below-forecast overseas shipments suggest “external headwinds” are persisting, Qu said.

“This calls for Beijing to keep an accommodative policy stance to counter-balance the external weakness, provided inflation stays benign,” he said.

Work Conference

China’s top leaders may gather in the coming days for the central economic work conference, an annual meeting to set a policy framework for the following year. Officials “seem content with the current pace of growth” and are likely to maintain their language of a “prudent” monetary policy and “proactive” fiscal stance, Capital Economics Ltd. said in a Nov. 30 note.

The preliminary reading, called the Flash PMI, is based on 85 percent to 90 percent of responses to a Dec. 5-12 survey of more than 420 companies, according to HSBC. The final number will be released on Dec. 31.

A separate, government-backed index of purchasing managers in manufacturing rose last month to 50.6, the highest since April. The December figure is due Jan. 1.

The benchmark Shanghai Composite Index of stocks advanced 4.3 percent, paring the decline so far in 2012 to 2.2 percent.

Growth Rebound

China’s economic growth is poised to rebound this quarter from the weakest pace in three years after the government deployed measures including interest-rate reductions and the acceleration of investment-project approvals. The nation’s new home prices rose in November by the most in four months, according to SouFun Holdings Ltd., the country’s biggest real estate website owner, even as the government maintained restrictions on purchases.

Gains in the HSBC and official gauges show “the positive change is not a one-off phenomenon,” Ding Shuang, a Hong Kong-based economist with Citigroup Inc. who previously worked at the International Monetary Fund, said in a Bloomberg Television interview. “More broadly, data since September confirm that economic activity is improving and it appears that the cyclical economic upturn is gaining momentum.”

Gross domestic product may expand 8.4 percent this quarter from a year earlier, up from 7.4 percent in the July-September period, Zhang Zhiwei, Hong Kong-based chief China economist for Nomura Holdings Inc., said in a note today. Growth momentum is being “underpinned by expansionary monetary and fiscal policies,” while inventories are shrinking to “more normal levels,” Zhang wrote.

Mixed Picture

November data released earlier this week gave a mixed picture of the economy. Industrial production accelerated for a third month, climbing 10.1 percent from a year earlier, while retail sales expanded at the fastest pace in eight months, statistics bureau data showed. Meantime, exports, new yuan loans and money supply all trailed forecasts.

Hyundai Motor Co., South Korea’s biggest automaker, said on Nov. 27 that it plans to increase production in China by 40 percent in three years and add higher-end models as it seeks to gain market share in the world’s largest market.

Operating conditions will improve in China’s steel industry, the world’s largest, this quarter and next year after nine months of losses, the official Xinhua News Agency reported last month, citing the China Iron & Steel Association.

While the economy is stabilizing, it will “face various challenges that should not be underestimated” next year, the ruling Communist Party’s Politburo said in its first assessment under Xi, according to a Dec. 4 Xinhua report. The government will keep macroeconomic policies stable and adjust them as needed, Xinhua said.

Markit is also releasing preliminary PMI readings today for the U.S., euro area, Germany and France.

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