China Manufacturing Index Shows Third Straight Expansion

A gauge of China’s manufacturing showed a third month of expansion, adding evidence that the recovery in the world’s second-biggest economy will extend into the new year.

The Purchasing Managers’ Index was 50.6 in December, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compares with the 51.0 median estimate in a Bloomberg News survey of 27 analysts and 50.6 in November. A reading above 50 indicates expansion.

Today’s report, along with a separate manufacturing gauge yesterday showing the fastest expansion in 19 months, reflects increased infrastructure spending that’s helping drive a rebound from a seven-quarter slowdown as a new generation of Communist Party leaders takes the nation’s reins. Li Keqiang, set to succeed Wen Jiabao as premier in March, is championing urbanization to put economic growth on a more sustainable path.

“Most data points, especially the industrial earnings, have been pointing to an impressive recovery,” Lu Ting, chief Greater China economist at Bank of America Corp. in Hong Kong, said in a note today. At the same time, “investors should be wary of getting too optimistic in coming months,” he said.

The final December reading of a purchasing managers’ index released yesterday by HSBC Holdings Plc and Markit Economics was 51.5, the highest in 19 months, after a 50.9 preliminary reading and a final 50.5 in November. The HSBC index focuses more on smaller businesses.

Gauge Unchanged

The fact that the official gauge was unchanged from November reflects that the “recovery is still relatively weak,” Zhang Liqun, a researcher with the state-run Development Research Center, said in the federation’s statement. “China’s economy is entering a stable growth zone with a growth rate hovering between 7 and 8 percent.”

The statistics bureau said the PMI for large enterprises in December was 51.1, down 0.3 from November; the level for mid-sized companies rose 0.2 to 49.9; and the index for small businesses advanced 2.0 to 48.1.

China’s economic growth probably accelerated to 7.8 percent in the fourth quarter from a year earlier, up from a three-year low of 7.4 percent in the previous period, according to the median estimate in a Bloomberg News survey of 34 analysts last month. The government will release its report Jan. 18.

Profits at Chinese industrial companies rose for a third month in November, statistics bureau data showed on Dec. 27.

‘Sustainable’ Growth

China will “step up efforts to promote strong, sustainable and balanced growth in the world economy,” President Hu Jintao said in a New Year’s Eve address broadcast by state radio and television. People’s Bank of China Governor Zhou Xiaochuan, in a separate statement yesterday, said the nation will maintain “prudent” monetary policy and deepen financial reforms in 2013.

South Korea’s exports unexpectedly fell for the first time in three months, government data showed today, suggesting that tepid global demand and gains in the won are sapping economic momentum as a new president prepares to take office. Overseas shipments dropped 5.5 percent in December from a year earlier, according to the Gwacheon-based Ministry of Knowledge Economy.

South Korea in October surpassed Japan as China’s top supplier of imports, according to Chinese data.

Iron ore prices have rallied the most in about two years as analysts predict that China will import a record amount in 2013 with steel demand picking up. The rebound will boost earnings for suppliers and Vale SA, the biggest exporter, is expected to report a 19 percent increase in profit this year, analyst estimates compiled by Bloomberg show.

Machinery Demand

Not everyone is benefiting from the economic rebound. Lonking Holdings Ltd., which makes and sells wheel loaders and other infrastructure machinery in China, said Dec. 28 that its financial results in 2012 may decline “significantly” because of weaker demand for its products.

The nation’s budget deficit may widen to 1.2 trillion yuan ($193 billion) in 2013, including the sale of 350 billion yuan of bonds to fund local governments, Bloomberg reported on Dec. 27, citing a person who asked not to be identified because the deliberations are not public. A bigger gap may help pay for tax cuts and measures to boost urbanization and consumer demand.

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