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An investor watches an electronic board showing stock information at a brokerage house in Huaibei, China on Dec. 14, 2012. (REUTERS)
An investor watches an electronic board showing stock information at a brokerage house in Huaibei, China on Dec. 14, 2012. (REUTERS)

economy

Rise in factory activity fuels China recovery hopes Add to ...

Chinese factories are getting busier ahead of the West’s holiday season, a climb in a purchasing managers’ index shows, suggesting China’s economic recovery is heading into more solid territory.

The HSBC Flash PMI, issued a week early to reflect the Christmas holiday, sits at 50.9 so far in December, a 14-month high. A number of below 50 indicates contraction; the HSBC final PMI was at 50.5 at the end of November and closed October at 49.5 per cent.

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The news is not all rosy; export growth slid in November after an October recovery, and economists warn Beijing may yet need to accommodate the continuing economic storm in Europe and weakness in the U.S.

“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. This calls for Beijing to keep an accommodative policy stance to counterbalance the external weakness, provided inflation stays benign,” wrote Qu Hongbin, chief economist for China at HSBC.

Still, for those who lean toward the bullish side in predicting the Chinese economy, this is evidence of better times ahead.

“Things are definitely improving. For the last several months there has been almost no data point that has not been getting better, month on month,” said Andy Rothman, the Shanghai-based China macro-strategist for CLSA Asia-Pacific markets, who said a pick-up in investment and a strengthening property market, along with steady consumer demand, are largely to credit for the faster pace.

“It’s not much of a recovery, but the slowdown was never very sharp,” Mr. Rothman said.

The numbers will give China’s new leadership team, set for confirmation in March, stronger footing as they navigate calls to maintain growth while implementing major economic and financial reforms. An annual economic policy meeting, which sets out the country’s economic direction for the next year, is expected to take place this weekend.

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