China Manufacturing Finally Expanding, Data Show

HONG KONG— Chinese manufacturing activity is on track to expand in November for the first time in more than a year, according to preliminary results of a key business survey released Thursday, adding to evidence pointing to a growth pick up during the fourth quarter.

HSBC said the preliminary or "flash" reading of its China manufacturing Purchasing Managers' Index (PMI) rose to 50.4 on a 100-point scale, above the 50-point threshold that separates improvement from deterioration.

It marked the first time in 13 months the index had topped the 50 mark. In October, the final reading of the HSBC China manufacturing PMI came in at 49.5. The final version of the HSBC was slated for Dec. 3.

Nomura economist Zhiwei Zhang said the preliminary survey supported the view of an improving mainland Chinese economy, and said he may revise his forecast higher for the official government-sponsored PMI, which was due out Dec. 1 and has already broken above the 50 mark this year.

"It shows that the policy easing has continued to support a growth recovery, and reinforces our view that growth will pick up strongly in the fourth quarter to 8.4% from 7.4% in the third quarter," Zhang said.

 Among the PMI's subcomponents, measures of output and new export orders both increased, reversing direction from October's reading.

Tempering the data pointing to strengthening condition, however, a broader gauge of new orders showed a general cooling from last month, although the conditions remained expansionary.

Société Générale called the details of the report "encouraging," noting that output was at its highest level since October last year, while new exports orders hit a two-year high.

"All in all, it was an encouraging report that should further dispel fears of a hard landing and increase confidence that China, and hence Asia, is really experiencing a cyclical recovery," SocGen economist Klaus Baader said in the note following the data release..

But Baader also conceded he was somewhat perplexed by the cooling in overall new orders, saying it may be a reflection of weak domestic demand within China, even as conditions were improving late 2011 and most of this year.

Still, Baader believed that "if exports pick up, the domestic economy is likely to follow suit."

HSBC's chief economist for China Hongbin Qu agreed the data backed up the view that China's economy was on the mend.

"This confirms that the economic recovery continues to gain momentum towards the year-end. However, it is still the early stage of recovery, and global economic growth remains fragile," Qu said.

In spite of the apparent support for a broad-based acceleration in the data, Shanghai stocks were more downbeat.

The Shanghai Composite Index CN:000001 -0.95%   traded down 0.5%, little changed from its opening level. On Wednesday the index fell to a fresh multi-year low before recovering to end the day higher.

Hong Kong stocks reacted more favorably, however, with the Hang Seng Index HK:HSI +0.55%  rising to a 0.7% gain by midday.