Chinese factory output accelerates

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.
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.PHOTO: AGENCE FRANCE-PRESSE

Manufacturing sector expanded last month at strongest pace in over two years

BEIJING • 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.

Growth has also accelerated in the service sector to levels not seen since 2014, pointing to improvement not only in heavy industries such as steel but also in the broader economy.

"The next move by the central bank will be an (interest rate) hike instead of a cut," said Mr 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 (PMI) rose to 51.7 in November from the previous month's 51.2 - above the 50-point mark that separates growth from contraction on a monthly basis.

China's economy 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.

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 yesterday that focused 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.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 02, 2016, with the headline 'Chinese factory output accelerates'. Print Edition | Subscribe