Chinas official manufacturing PMI, released over the weekend, improved for the fourth month in a row to 50.6 in November from Octobers 50.2. The index missed expectations of 50.8 in a Bloomberg poll of analysts but still cheered markets up as it was the highest figure in 7 months.
The figure added to expectations that China will achieve its economic target of 7.5% this year. It adds to the ever increasing evidence that China has bottomed aided by infrastructure led stimulus, Eimear Daly, foreign exchange market analyst at Monex Europe, said.
The encouraging news has determined some economists to predict that growth rates of 8% are attainable either in the fourth quarter or in the first quarter of next year.
Last month, the flash HSBC PMI hit a 13-month high.
But the official PMI shows there are signs of weakness in the data still, according to Wei Yao, Asia Pacific analyst at Societe Generale.
First, she noted, the unemployment sub-index deteriorated further, hitting the lowest level in 10 months. Second, the restocking process seems to be painfully sluggish and third, pressure on corporate margins because of excess capacity and high inventories hasnt gone away completely.
Overall, the Chinese economy is on the mend gradually, but the excess capacity issue is likely to remain a major challenge for manufacturers, Yao said.
Among the strong points of the Chinese official manufacturing PMI Flemming Nielsen, an analyst with Danske Bank, noted the improvement in the new orders component to 51.2 from 50.4 and export orders expanding to 50.2 from Octobers 49.3.
The continued improvement in Chinas manufacturing PMIs is consistent with our view that the Chinese economy has bottomed out and has started to recover moderately, said Nielsen.
He expects Chinas GDP to advance at a rate of 7.8% in the fourth quarter and by 8.3% in the first quarter of next year.
Another measure of the health of Chinas factories, the final HSBC manufacturing PMI, recorded the first improvement of operating conditions in 13 months, coming in at 50.5 in November from Octobers 49.5.
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It said new orders rose for the second month in a row, albeit at a weaker pace, new export orders increased for the first time since April, backlogs of work continued to fall and the rate of job shedding was only slight.
This confirms that the Chinese economy continues to recover gradually, said HSBC chief economist for China Hongbin Qu in the press release.
We expect GDP growth to rebound modestly to around 8% in the fourth quarter as the easing measures continue to filter through.
But the road to recovery is not that clear, with some analysts pointing out that the PMIs paint a mixed picture.
Mark Williams, chief Asia economist at Capital Economics, said that smaller firms reported that conditions were the weakest in 6 months, and this showed that the recovery was unbalanced.
The breakdown by company size shows that recent improvements have been driven almost entirely by large firms, according to Williams.
Medium-sized firms have seen no meaningful improvement while the sub-index for small firms fell last month to 46.1, the lowest since May, he said.
This fits the view that recovery is being driven by spending on infrastructure, which tends to benefit large industrial firms.