China economy

Factory surge drives index to 19-month high

Manufacturing expansion indicates economy on the mend, PBOC chief hints policies to continue

PUBLISHED : Tuesday, 01 January, 2013, 12:00am
UPDATED : Tuesday, 01 January, 2013, 3:49am

The mainland's economic recovery seems to be gathering speed as manufacturing grew in December at its fastest pace in 19 months thanks to Beijing's stable economic policies, which are likely to be maintained this year.

The HSBC Purchasing Managers' Index, or PMI, rose to 51.5 last month, up from 50.5 in November and higher than the preliminary reading of 50.9 in mid-December. That is the biggest rise in the index since May 2011. A reading above 50 indicates expansion, while one below it shows contraction.

New orders also rose, according to HSBC and Markit's survey of executives.

Qu Hongbin, HSBC chief economist for China, said he expected the favourable momentum in the manufacturing sector to be sustained in the coming months, "when infrastructure construction runs at full speed and property market conditions stabilise".

New export orders fell in December, though, following a modest increase in November, amid weak demand in Europe, Japan and the United States, the PMI report said. But the fall was registered by just over 12 per cent of those surveyed, it added.

Minister of Commerce Chen Deming said last week that imports and exports as a whole might have expanded by 6 per cent for the year. That would be short of the official 10 per cent growth target for the year and the slowest expansion since the global financial crisis in 2009.

Bejing will stick to a prudent monetary policy next year and keep consumer prices stable, outgoing central bank governor Zhou Xiaochuan said, in fresh sign that there will be no change in direction when the new government takes over in 2013.

Reiterating China's long-stated vow to reduce the level of central planning and make room for more market forces, Zhou said China will deepen reforms in its financial sector this year.

"In 2013, we will continue to implement prudent monetary policy and make policies more pre-emptive, targeted and flexible," Zhou said. "We will keep overall price levels basically stable and promote healthy and sustainable growth of the economy. We will also further deepen financial reforms and the opening up of financial markets."

Zhou's remarks followed similar comments from outgoing president Hu Jintao, who promised that reform of the growth model would be a crucial theme this year. The nation will "step up efforts to promote strong, sustainable and balanced growth in the world economy", Hu said.

External headwinds and weakening domestic demand dragged China's growth back to 7.4 per cent in the third quarter, from 7.6 per cent in the second and 8.1 per cent in the first.

But economists forecast a recovery in the fourth quarter after the authorities approved more investment projects and allowed a surge in non-bank financing through bond and trust products.

Additional reporting by Reuters, Bloomberg