Factory surveys show China reviving, global rebound fragile

BEIJING Mon Dec 3, 2012 2:12pm IST

An employee works at an iron and steel plant in Wuhan, Hubei province November 1, 2008. REUTERS/Stringer/Files

An employee works at an iron and steel plant in Wuhan, Hubei province November 1, 2008.

Credit: Reuters/Stringer/Files

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BEIJING (Reuters) - China's economy picked up in November but a broader global recovery remains fragile and patchy, a clutch of factory surveys suggested on Monday, with activity elsewhere in Asia remaining subdued amid depressed demand from the developed world.

The euro zone, where factory surveys are due later, is on course for its worst quarter since the depths of the global financial crisis in early 2009. The U.S. picture is brighter, but manufacturing growth is still seen slowing in the fourth quarter.

The big emerging economies that have contributed most to global growth in recent years have been sputtering of late, with India expected to post its weakest full-year GDP expansion in a decade and Brazil logging an unexpectedly weak third quarter.

That has left investors once again hoping China will take up the slack, and evidence has been accumulating since late September that the Chinese economy is regaining its vigour after seven straight quarters of slowing growth.

"There is growing confidence that China's economy bottomed in July-September, with signs of firmer external demand," said Hirokazu Yuihama, a senior strategist at Daiwa Securities.

Monday's final reading of HSBC's China manufacturing Purchasing Managers' Survey (PMI) rose to 50.5 in November from 49.5 in October, the first time since October 2011 the headline number has topped the 50-point line that demarcates growth and contraction from the previous month.

"This confirms that the Chinese economy continues to recover gradually," HSBC's chief China economist Hongbin Qu wrote.

It followed a similar survey from the National Bureau of Statistics, released on Saturday, that 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.

But contained within the official data were potentially worrying signs that the Chinese economy has failed to shed its heavy reliance on state-led investment.

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 National Bureau of Statistics said in an accompanying note.

"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."


That might go some way towards explaining why the rebound in East Asia's other exporting powerhouses appears more tentative.

South Korea's HSBC/Markit PMI edged up to a seasonally adjusted 48.16 in November from 47.37 in October and a 43-month low of 45.71 in September, but was still below the key 50-mark for the sixth month in succession.

Taiwan's PMI reading has also been below 50 for six successive months, with the headline number deteriorating to 47.4 in November from 47.8 in October on weakening demand at home and abroad.

Monetary easing by the big developed world central banks has been blamed for pushing up the currencies of countries such as Korea and Taiwan, hampering their export-led recoveries.

Weekend data from South Korea showed exports rose in annual terms for the second consecutive month in November, but the rate of growth still remained far below what was seen in 2011 and a breakdown of the numbers highlighted the patchy global recovery.

Shipments to China and Southeast Asia posted sharp gains over a year earlier, whereas demand from the United States and the European Union shrank.

Debt-mired Europe relapsed into recession in the third quarter, and is expected to remain a drag on the world economy well into 2013.

Manufacturing PMI surveys from Europe are expected to show the rate of decline in the sector easing, but the headline reading for the euro zone is still seen well below the 50-mark at 46.2.

In the United States, the Institute of Supply Management (ISM) index of national factory activity, one of two PMI surveys due on Monday, is expected to decline slightly to 51.3 for November, still above the 50-line, from 51.7 in October.

India, whose economic woes are as much to do with internal politics and its struggle to control a yawning fiscal deficit as with the global downturn, represented a bright spot among Monday's factory read-outs.

India's factory activity has been expanding for over three-and-a-half years, although it remains well below the expansion rate seen in the years before the global financial crisis.

Monday's HSBC manufacturing PMI, which gauges the business activity of India's factories but not its utilities, beat expectations, rising to 53.7 in November from 52.9 in October.

The pace of expansion in Indonesia's factory sector eased in November, but new orders and new export orders reached their highest levels since the HSBC survey series began in April 2011.

(Additional reporting by Sumanta Dey in Bangalore, Chikako Mogi in Tokyo, Se Young Lee in Seoul and Faith Hung in Taipei; Writing by Alex Richardson; Editing by Neil Fullick)

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