November 28, 2012 / 8:05 AM / 8 years ago

China's November official PMI seen hitting seven-month high as demand revives

BEIJING (Reuters) - China’s factory activity in November probably expanded at its fastest pace in seven months, reinforcing views that recovery in the world’s second-largest economy is entrenched going into the final quarter of the year.

An employee checks on a steel product at a steel production factory in Wuhan, Hubei province, August 2, 2012. REUTERS/Stringer

China’s official purchasing managers’ index (PMI) in November may have rebounded to 50.6 from October’s 50.2, the median estimate of 11 economists polled by Reuters showed, the latest evidence a recovery in the vast manufacturing sector was gathering momentum on the back of a revival in domestic demand.

The 50-point line demarcates accelerating from slowing activity in PMI survey methodology.

“More signs are emerging that the economy is gaining strength and the recovery is durable. Therefore, the market has shown it has high expectations for November economic data,” said Nie Wen, an analyst at Hwabao Trust in Shanghai.

“The strong readings of power output and cargo freight in recent weeks also cement this trend,” he added.

China’s economy has shown positive changes since September, with an array of economic indicators from factory output to retail sales and investment pointing to an uptick in the broader economy, as Beijing’s pro-growth policies start to bite.

Analysts said the end of a destocking cycle and a quickening pace of investment would keep driving up domestic demand and extend the recovery trend into the final quarter of this year.

China’s annual economic growth dipped to 7.4 percent in the third quarter, slowing for seven quarters in a row and leaving the economy on course for its weakest showing since 1999.

Given recent signs of recovery, many analysts expect the economy to snap out of its longest downward cycle since the global financial crisis and start to trend up in the fourth quarter.

A flash PMI published last week by HSBC showed China’s factory sector saw its expansion accelerate in November for the first time in 13 months, signaling that the pace of economic growth has revived.

But economists also warned of downside risks from still cloudy external markets, considering the nagging European debt crisis and listless U.S. economy continued to crimp demand from China’s two largest trade partners.

The central bank has moved cautiously in easing monetary policy to underpin economic growth, wary of reigniting inflation and fanning property prices which are still high.

It cut interest rates twice in June and July and lowered banks’ reserve requirement ratio by 150 basis points in three steps since last November, but has refrained from further cuts since July. The authorities opted to inject liquidity via open market operations to pump short-term cash into money markets.

The official PMI generally paints a rosier picture of the factory sector than the HSBC PMI as the official survey focuses on big, state-owned firms, while the HSBC PMI targets smaller, private firms. There are also differing approaches to seasonal adjustment between the two surveys.

The official PMI survey will be released on Saturday at 0100 GMT (8 p.m. ET on Friday), ahead of the final HSBC PMI reading due at 0145 GMT.

Reporting by Aileen Wang and Lucy Hornby; Editing by Jacqueline Wong

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