HSBC index indicates strengthening of China’s manufacturing sector

The Chinese manufacturing sector saw significant expansion in November and December, according to the HSBC Purchasing Managers’ Index (PMI). The initial PMI rose to a 14-month high of 50.9 in December, following a strong final PMI reading of 50.5 in November. An increase over the threshold of 50 separates expansion from contraction, which was recorded for the first time in 13 months in November. The October PMI was 49.5.
HSBC’s initial or “flash” PMI reading is based on responses from 85% to 90% of the total respondents in the monthly survey.
Hongbin Qu, HSBC’s chief economist for China, said the improvement in the latest survey results confirmed that China’s “ongoing growth recovery is gaining momentum, mainly driven by domestic demand conditions. However, the drop of new export orders and the downside surprise of November exports growth suggest the persisting external headwinds.”
The turnaround, which was initially reflected in the November PMI survey results, was attributed to a greater demand for Chinese goods around the world, as well as a series of domestic stimulus measures by the government.
The HSBC index is watched closely by economists and investors, and is considered one of earliest indicators on the Chinese economy’s performance. If HSBC’s readings are confirmed by further economic data in the coming weeks, the improved performance would indicate that China has managed to overcome the slowdown in growth that characterized the country for much of the past year. Many analysts believe the Chinese economy is on a rebound, and has already put the worst behind it.
The HSBC reading suggests that the “upswing in China — and by extension in the whole Asia-Pacific region — is gathering strength,” said Klaus Baader, an economist at the French bank Société Générale in Hong Kong. He added that the report “should further dispel fears of a hard landing.” (November 22/December 13, 2012)