Activity in China’s manufacturing
sector grew more than expected in November, expanding at its strongest pace in more than two years, as the world’s second-largest economy
picks up momentum heading into what promises to be a tumultuous 2017.
After a rocky start to the year, China’s factories have perked up in recent months, buoyed by a government infrastructure building spree and a housing boom that is starting to show signs of fatigue.
has also accelerated in the services
sector to levels not seen since 2014, pointing to improvement not only in heavy industries like steel but also in the broader economy.
“The next move by the central bank will be a hike instead of a cut,” said Raymond Yeung, chief economist of Greater China
for ANZ in Hong Kong. “But we believe that won’t happen over the next 12 months because the current environment is still very vulnerable.”
The official Purchasing Managers’ Index rose to 51.7 in November from previous month’s 51.2 and above the 50-point mark that separates growth
from contraction on a monthly basis.
November’s reading was above the prediction of a Reuters poll for 51.0 and matched a previous high in July 2014. The last time China’s PMI
was higher was in April 2012, when it was 53.3.
The official survey also pointed to building inflationary pressures, as the construction
frenzy and reductions in excess industrial capacity have spurred a spectacular months-long rally in Chinese commodity prices.
A sub-index for raw materials prices jumped to 68.3 in November from 62.6 in October, and a drop in inventories suggested a fresh round of factory restocking ahead.
But ANZ’s Yeung doesn’t think the higher producer prices will present immediate challenges for the central bank as they won’t filter through to consumers until the end of next year.
Moreover, commodities’ futures prices have plunged this week, with steel seeing its worst one-day plunge on record, as major trading exchanges took further steps to curb speculation.
expanded at a steady 6.7 per cent clip in the third quarter and looks set to hit Beijing’s full-year target of 6.5 to 7 per cent, fuelled by stronger government spending, record bank lending and the red-hot property market that are adding to its growing pile of debt.
Factory output quickened in November, with the sub-index rising to 53.9 from 53.3, the official survey showed.
Total new orders saw another month of solid improvement, rising to 53.2 from October’s 52.8.
But large firms continued to outperform smaller ones, with the gap widening in November, highlighting that the government’s dependence on big state firms for growth
this year has not changed.
Indeed, an independent factory survey published by Caixin/Markit on Thursday focusing on smaller companies showed more modest growth
that slowed from October.
“Overall, we judge that the economy
has gained momentum in the short term but the quality of growth
may have deteriorated, as evidenced by a further drop in the official PMI
for small enterprises and a drop in the Caixin PMI,” economists at Nomura said in a note.
A measure of construction
industry activity in a separate non-manufacturing
survey published Thursday stood at 60.4, softening from 61.8 in October but still high as the government races to build new roads, rail lines and ports to buoy growth.
But the property sector saw a not-too-surprising fall as the sizzling housing market cools down following a slew of tightening measures imposed by policymakers who are fearful of a property bubble.
New export orders also increased, though they were barely in expansionary territory.
Any pickup in external demand will be welcome for China’s massive factory sector as the housing boom looks set to fade and worries grow about a potential trade war with the United States as President-elect Donald Trump prepares to take charge.
During the election campaign, Trump had threatened to slap high tariffs on Chinese goods and said he would brand China
a currency manipulator on January 20, his first day in office.
Trump’s upset win has already fuelled a surge in the US dollar, helping to push the yuan currency to 8-1/2-year lows and threatening China’s policymakers with a surge in capital outflows.
A separate reading on the services
sector also showed the pace of growth
quickened in November from the previous month.
The official non-manufacturing
Purchasing Managers’ Index stood at 54.7 in November, the strongest since June 2014.
That compared with the previous month’s reading of 54.0 and remained well above the mark that separates growth
from contraction on a monthly basis.