* China HSBC November PMI at 13-month high of 50.4
* First headline reading above 50 since October 2011
* Output sub-index also at 13-month peak of 51.3
* Asian stocks, Aussie dollar firm after data
By Lucy Hornby
BEIJING, Nov 22 China's vast manufacturing
sector saw expansion accelerate in November for the first time
in 13 months, preliminary results from a factory survey showed,
a sign that the pace of economic growth has revived after seven
consecutive quarters of slowdown.
The China HSBC Flash Manufacturing Purchasing Managers Index
(PMI) rose to a 13-month high of 50.4 in November, the latest
indicator of recovery in the real economy after data showing
solid credit growth, firmer exports and rising industrial output
in the previous month.
A sub-index measuring output rose to 51.3, also the highest
since October 2011.
"This reflects that conditions for smaller firms, especially
exporters, are looking up," said Li Wei, a Shanghai-based
economist for Standard Chartered. "The consensus in the market
is already for a small, gradual improvement."
An uptick in key economic activity indicators in October,
following encouraging signs in September, cemented the view of
many analysts and investors that a rebound in the world's second
largest economy gathered momentum as it entered the fourth
quarter, thanks to a raft of pro-growth policies rolled out by
the government over recent months.
China is currently shuffling its senior officials after the
seven top leaders of the ruling Communist Party were selected at
a congress last week. The new appointments should end months of
uncertainty in the highest ranks, although economic policy is
not expected to change abruptly in the near-term.
Even before the congress, the central bank had moved to ease
liquidity by pumping short-term cash into money markets rather
than resorting to the interest rate cuts or reduction in banks'
required reserve ratios that many investors had expected.
STEADY THROUGH YEAR-END
This month's PMI reading above 50 is likely to be seen as a
turning point by the market, particularly if it is born out by
the final reading due on Dec. 1 and by official indicators.
Asian shares extended gains slightly after
the data to stand up nearly 1 percent on the day and the
Australian dollar, sensitive to demand from the biggest
customer for Australia's resources, rose as far as $1.04.
"This confirms that the economic recovery continues to gain
momentum towards the year-end," Qu Hongbin, chief China
economist at index sponsor HSBC, said in a statement
accompanying the data.
"However, it is still the early stage of recovery and global
economic growth remains fragile. This calls for a continuation
of policy easing to strengthen the recovery."
With a one-month exception in October 2011, the HSBC PMI --
which largely reflects the private manufacturing sector -- has
remained stubbornly below the 50-point level separating
accelerating from slowing growth since June 2011.
Unlike the patchy results seen in previous months, in
November almost all the sub-indices in the HSBC survey concurred
in showing an improving economy.
The one exception was a fall in the sub-index measuring
output prices, demonstrating that manufacturers are still
struggling with overcapacity and relatively weak domestic
That could also reflect the weight in the survey of
exporting firms, which have less ability to raise sales prices,
said Standard Chartered's Li.
Indeed, China's exporters are increasingly squeezed by
rising domestic costs and competition from new international
suppliers, Zhou Haijiang, head of Chinese textile exporter Hodo
Group, told reporters this month.
"Not only Western countries manufacture industrial goods,
but also a lot of developing countries including former
socialist countries who now have market economies are all
exporting, thus creating a global surplus that cannot be
changed," Zhou said.
"Because of this it is hard to raise sales prices, everyone
is selling and it is hard for manufactured goods prices to rise.
In some cases prices have even fallen."
Analysts expect no further cuts to interest rates this year
or next after back-to-back cuts in June and July, and only one
more 50 basis point cut to banks' required reserve ratios (RRR)
in 2012 after three since late 2011 that have freed an estimated
1.2 trillion yuan for new lending.
Chinese banks are on course to make new loans worth more
than 8.5 trillion yuan ($1.4 trillion) in 2012, expansionary
versus the 7.5 trillion of new loans extended in 2011 and above
the 8 trillion yuan that sources told Reuters back in February
was the target for 2012.
Total social financing aggregate, a broad measure of
liquidity in the economy, weakened to 1.29 trillion yuan in
October, down from 1.65 trillion yuan in September, but still
remained on track to hit a record 14 trillion yuan this year.
China also opened many previously-closed sectors to private
investment with a view to funding new infrastructure projects
and supporting economic growth without piling on more debt that
local governments can ill-afford.
Although analysts expect fourth quarter GDP growth to
outpace the 7.4 percent seen in the third quarter, full-year
expansion for 2012 is expected to be the slowest in 13 years.