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China HSBC PMI survey shows manufacturing sector growth reviving, but economic growth uneven

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SummaryPace of activity in China's manufacturing sector quickened for first time in 13 months: HSBC

The pace of activity in China's vast manufacturing sector quickened for the first time in 13 months in November, a survey of private factory managers found, adding to evidence that the economy is reviving after seven quarters of slowing growth.

The final reading for the HSBC Purchasing Managers' Survey (PMI) rose to 50.5 in November from 49.5 in October, in line with a preliminary survey published late last month. It was the first time since October 2011 that the survey crossed above 50 points, the line that demarcates accelerating from slowing growth.

The final HSBC reading follows a similar survey by the National Bureau of Statistics (NBS) released this weekend, which 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.

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

An official PMI survey of China's non-manufacturing sectors also ticked up, to 55.6 in November from 55.5 in October, led by expanded activity in construction services. But growth in air and rail transport and food and beverages both slowed.

While a recovery in growth appears possible, there are troubling signs that China is still relying too much on state-led investment rather than the more dynamic private sector.

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 NBS said in a not accompanying its official manufacturing PMI survey.

"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."

In another sign that demand remains lacklustre, an HSBC sub-index for output prices fell despite a rise in a different sub-index for input prices, indicating that firms are unable to pass rising costs on to buyers.

"Whilst we feel that the economy has been stabilized through the short-term, we feel that the manner in which activity has been revived will retard China's economic reform agenda and make the transition onto a sustainable footing all the more tricky," wrote Xianfang Ren and Alistair Thornton of IHS Global Insight.

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