Growth in China's vast manufacturing sector picked up in December, a preliminary private survey showed, with rises in areas such as new orders and employment underlining a brighter outlook for the economy in coming months.
The HSBC flash purchasing managers' index for December rose to 50.9, a 14- month high and the fifth straight monthly gain. A figure above 50 indicates that growth is accelerating, while one below 50 shows slowing growth.
The flash survey – issued earlier in the month than usual ahead of the Christmas holidays – follows a raft of data that suggest annual economic growth has quickened in the fourth quarter after it slowed for seven consecutive quarters to 7.4 percent. Still, China is on track this year for its slowest full-year growth since 1999.
Improving conditions are primarily driven by domestic demand, said Hongbin Qu, China chief economist at HSBC.
"The drop of new export orders and the downside surprise of November exports growth suggest the persisting external headwinds. This calls for Beijing to keep an accommodative policy stance to counter-balance the external weakness, provided inflation stays benign," Qu added.
Most sub-indexes improved with the exception of output and new export orders, which dipped, possibly reflecting softer end-of-year orders. Encouragingly, a sub- index on new orders rose for the fifth month in a row to 52.7, its highest level since April 2011.
The PMI figures also suggested some improvement in margins for manufacturers as a sub-index tracking output prices rose while one tracking input prices fell. A sub-index tracking employment rose to its highest level since February. Government data earlier this week showed industrial production growth in November jumped to an eight-month high while inflation ticked up from 33- month lows.
The data added to the view a long slide in economic growth was over, although other figures suggest a recovery will be bumpy.
November exports were unexpectedly weak, slowing to less than 3 percent annual growth compared with 11.6 percent in October. That could hit the firms concentrated in China's coastal export hubs, where private firms account for much of new hiring and new government revenues.
China has loosened the reins on credit this year to help the economy revive, with money flowing through channels outside the traditional state-controlled banks. Trust loans and corporate bonds are increasingly important sources of financing for private businesses and real estate developers, but usually come with