The HSBC flash manufacturing PMI hit a 14-month high of 50.9 in December from last month’s 50.5, slightly beating analysts’ expectations of a 50.8 expansion, with new orders increasing at a faster rate.
The Shanghai Composite index jumped 4%, the biggest one-day gain since 2009, after the data was released.
The PMI figure “confirmed that China’s ongoing growth recovery is gaining momentum mainly driven by domestic demand conditions,” said Hongbin Qu, chief economist for China at HSBC.
Output, input prices and the quantity of purchases increased at a slower rate while suppliers’ delivery time lengthened at a slower rate.
Employment posted no change while backlogs of work increased, changing direction. Output prices also increased compared with November’s decrease.
Stocks of purchases decreased, changing direction, while stocks of finished goods contracted at a slower rate.
The figures stress that external demand “remains the biggest short-term threat for the Chinese economy,” Flemming Nielsen, senior analyst at Danske bank, said.
However, he noted that new orders jumped from 50.8 to 52.7, the highest level since April 2011.
“The continued improvement in the manufacturing PMI confirms what has also been evident in the hard data that the Chinese economy has bottomed out and has started to recover moderately,” Nielsen said.
GDP GROWTH
He expects China’s GDP growth to improve to 7.8% year-on-year in the fourth quarter of this year and to 8.3% in the first quarter of 2013.
But not all analysts are as optimistic. Qinwei Wang, China economist at Capital Economics, pointed out that “a high level of inventories is continuing to weigh on output.” “What’s more, the output component also fell, from 51.3 to 50.5, while the inventories index rose from 48.8 to 49.7 (figures below 50 point to inventory contraction),” Wang said.
“The two together suggest that final demand is still not strong enough to make a dent in the level of stocks. Further increases in demand will be needed to support stronger output.”
China’s economic targets for 2013 will be set at the upcoming Central Economic Work Conference (CEWC).
“Given the string of positive data since September, there is little reason for the authority to ease economic policies further,” Wei Yao, Societe Generale China analyst, said.
The top leaders of China’s communist party sounded more confident in the growth momentum and emphasized the importance of the quality of growth at their Politburo meeting last week, in preparation of the CEWC, Yao noted.
“Hence, we expect no change in the growth target of 7.5% and a largely neutral policy stance,” she said.