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China's Manufacturing Expands
BEIJING—China's economy is showing fresh signs of strength as a preliminary gauge of manufacturing activity rose to a 14-month high in December.
The flash reading of the HSBC China Manufacturing Purchasing Managers' Index showed manufacturing activity has expanded for a second straight month, adding to a raft of recent data signaling that the world's second-largest economy is steadily recovering.
"It confirmed that China's ongoing growth recovery is gaining momentum, mainly driven by domestic demand conditions," Qu Hongbin, chief China economist for HSBC Holdings PLC, said in a statement.
The reading also pointed to solid economic growth in the fourth quarter.
Nomura economist Zhang Zhiwei said the PMI reading reinforces his view that China's economy "is on track for a strong recovery," with growth likely to top 8% in the fourth quarter.
The government has targeted a 7.5% rise in the economy this year. Gross domestic product grew 7.4% in the third quarter from a year earlier, its slowest pace since the first quarter of 2009.
The preliminary reading of HSBC's PMI for December rose to 50.9, compared with a final tally of 50.5 in November, HSBC said Friday. A reading above 50 indicates expansion.
The result followed a surprisingly strong reading for industrial output in November. Production in expanded 10.1% from a year earlier during the month, the fastest pace since March. Output rose 9.6% in October, according to official data.
Strength was also seen in electricity output, which some analysts consider a more reliable indicator of economic conditions than other official data. Power output rose 7.9% in November from a year earlier, the fastest pace this year.
However, trade conditions haven't been as strong, reflecting persistently slack overseas demand. Exports rose just 2.9% in November from a year earlier, well below October's 11.6% rise, official data showed.
The latest PMI figures indicated that new export orders remained weak, with the reading dropping to 49.5 from 52.0 in November.
The employment subindex stopped contracting for the first time in 10 months in December but input prices data were less encouraging, with growth slowing from the month before.
"Strengthening domestic demand continues to lift China's manufacturing growth, although external weakness is likely to persist," HSBC said.
Infrastructure spending has been one of the drivers of domestic growth, and government spending—coupled with accommodative monetary policy—is necessary for this to continue, the bank said.