Chinese manufacturing on a roll

China's economy resumed momentum in November, but there are still signs of over-reliance on growth from the inefficient state sector, official manufacturing data shows.

China's purchasing managers' index (PMI) reached 50.6 last month, up from 50.2 in October and 49.8 in September, the National Bureau of Statistics said on Saturday.

A PMI reading above 50 indicates expansion while anything below points to contraction.

Separately, in a further sign of upward momentum, a closely watched private survey of Chinese manufacturing released by HSBC on November 22 showed growth for the first time in 13 months.

The British banking giant's preliminary purchasing managers' index reached 50.4 in November, up from a final 49.5 in October and 47.9 in September.

HSBC is set to release its final November PMI data today.


China's economic growth hit a more than three-year low of 7.4 per cent in the third quarter from July to September, but recent data have fuelled optimism that the worst is past.

Exports, industrial production, retail sales and fixed asset investment - a key gauge of infrastructure spending - have all shown improvement.

‘‘Much activity is emanating from the state sector, with infrastructure projects driving growth. In China’s relatively closed economic system, this means that activity levels can be sustained,’’ wrote Xianfang Ren and Alistair Thornton of IHS Global Insight.

‘‘Whilst we feel that the economy has been stabiliSed 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.’’

The headline PMI figure is in line with  economists' expectations, and confirms a trend toward recovering growth in the world’s second-largest economy.

But analysts caution that growth has been revived through top-down easy credit to state-owned firms and infrastructure projects that lack the dynamism of China’s private economy, which is struggling with credit curbs and a policy-induced slowdown in the speculative real estate sector.

‘‘The improving numbers are mostly because of government investment,’’ said Dong Xian’an, an economist with Peking First Advisory.

‘‘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.’’

The outlook comes as China concluded an overhaul of the ruling Communist Party's top leadership last month.

Vice-President Xi Jinping took charge of the party from President Hu Jintao, whom he is also expected to replace as president in March.

China cut interest rates twice this year and decreased the amount of funds banks must keep in reserve three times since December last year to encourage lending.

But it has avoided the type of major initiatives it took after the 2008/2009 global financial crisis, including a government-driven stimulus package worth about half a trillion dollars.

AFP, Reuters