By Lucy Hornby
BEIJING Dec 31 Activity in China's vast
manufacturing sector hit its fastest pace in December since May
2011, a survey of private factory managers showed, with a
sub-index for new orders pointing to continued strength in the
The final reading for the HSBC Purchasing Managers' Index
rose to 51.5 in December, well above the preliminary reading of
50.9 published in the middle of the month and November's final
reading of 50.5.
A complementary December survey by China's National Bureau
of Statistics, due to be published on Tuesday, is expected to
show similar signs of manufacturing strength. Economists polled
by Reuters expect the official PMI to show a rise to 51.0 from
50.6 in November, expanding at its fastest pace in eight months.
The HSBC PMI rose above 50, the line that demarcates
accelerating from slowing growth, in November for the first time
in more than a year.
The survey results fit with a growing consensus that the
Chinese economy revved back up in the fourth quarter, after
growth slowed for the seventh consecutive quarter to 7.4 percent
in the third.
A sub-index tracking new orders showed even more room for
optimism, rising to 52.9, its highest level since January 2011.
"Such a momentum is likely to be sustained in the coming
months when infrastructure construction runs into full speed and
property market conditions stabilise," Hongbin Qu, HSBC's chief
economist for China, wrote in a note accompanying the survey.
"This, plus Beijing's reiteration of keeping pro-growth
policy in place into the coming year, should support a modest
growth recovery of around 8.6 percent year-on-year in 2013,
despite the ongoing external headwinds."
In another sign of factory-sector growth, a sub-index
tracking output rose to its highest level since May 2011.
The improving economic picture seems primarily linked to
domestic demand, as China's export sector continues to grapple
with a slowdown in its biggest markets. A new export orders
sub-index retreated below 50 in December, after rising into
expansionary territory in November for the first time in seven
"Infrastructure and housing are picking up, so related
sectors like steel and cement are picking up," said analyst
Zhang Zhiwei from Nomura International in Hong Kong.
"It's more driven by investment than consumption."
China is on course to achieve growth of 7.7 percent in 2012,
according to forecasts in a benchmark Reuters poll, the slowest
full year of expansion since 1999.
While that is way above the world's other major economies,
it is below the roughly 10 percent annual growth seen for most
of the last 30 years.
Manufacturing activity could be buoyed by brisk consumption
in the final month of the year and the end of a destocking
cycle, Xie Yaxuan, an analyst at Merchants Securities, said last
The government so far has relied on fine-tuning its policy
settings to try to combat the worst downturn China has faced
since the 2008-09 global financial crisis, studiously avoiding
any hint of repeating the 4 trillion yuan ($640 billion)
stimulus package it launched back then.
Measures to boost growth included injecting liquidity into
the financial system through money market operations and
accelerating approval of infrastructure projects.
However, while the central government has pledged to
continue its strict property market controls, land prices have
ticked up in many regions and developers are once again openly
marketing luxury second homes, even in the capital. China's
property sector directly supports over 40 industries.
Chinese Vice Finance Minister Li Yong, in comments published
on Dec. 26, warned of rising risks in the banking sector and
pressure on government revenues in 2013.
Regulators are increasingly concerned over the risks posed
by investment products that offer higher returns to depositors
and investors, and help channel money into China's
higher-interest rate shadow banking system.
Economist Michael Pettis of Peking University's Guanghua
School of Management warned that even if regulators act to limit
the proliferation of wealth management products, China will
still see shrinking returns unless it moves away from its
investment-led growth model.
"The problem is the inexorable tendency of the current
development model to generate debt faster than it generates
debt-servicing capacity," Pettis wrote in a recent newsletter.
"Growth in China is currently dependent on an unsustainable
increase in debt."