Factories in China showing extra muscle

The final reading for the HSBC Purchasing Managers’ Index (PMI) rose to 51.5 in December, well above the preliminary reading of 50.9 published in the middle of the month and November’s final reading of 50.5.

A complementary December survey by China’s National Bureau of Statistics, due to be published today, is expected to show similar signs of manufacturing strength.

Economists polled by Reuters expect the official PMI to show a rise to 51.0 from 50.6 in November, expanding at its fastest pace in eight months. The HSBC PMI rose above 50, the line that demarcates accelerating from slowing growth, in November for the first time in more than a year.

The survey results fit with a growing consensus that the Chinese economy revved back up in the fourth quarter, after growth slowed for the seventh consecutive quarter to 7.4 per cent in the third.

A sub-index tracking new orders showed even more room for optimism, rising to 52.9, its highest level since January 2011.

“Such a momentum is likely to be sustained in the coming months when infrastructure construction runs into full speed and property market conditions stabilise,” Hongbin Qu, HSBC’s chief economist for China, wrote in a note accompanying the survey.

“This, plus Beijing’s reiteration of keeping pro-growth policy in place into the coming year, should support a modest growth recovery of around 8.6 per cent year-on-year in 2013, despite the ongoing external headwinds.”

In another sign of factory-sector growth, a sub-index tracking output rose to its highest level since May 2011.

The improving economic picture seems primarily linked to domestic demand, as China’s export sector continues to grapple with a slowdown in its biggest markets. A new export orders sub-index retreated below 50 in December, after rising into expansionary territory in November for the first time in seven months.

“Infrastructure and housing are picking up, so related sectors like steel and cement are picking up,” said analyst Zhang Zhiwei from Nomura International in Hong Kong.

“It’s more driven by investment than consumption.”

The recent opening of the business-focused Confucius Institute at Leeds University, the third of its kind in Europe, is expected to boost business links between Yorkshire and China.

The institute, backed by the Chinese government, runs training courses in Chinese culture and etiquette for UK companies hoping to invest in China and orientation courses for Chinese investors in the UK.

Ahead of the opening of the institue in November, Peter Buckley, professor of international business at Leeds University Business School, said that there are “a number of very large and lucrative potential markets” in China for UK businesses.

“There’s a big market for British luxury goods... then there’s a market for general consumer goods and to support Chinese infrastructure.” There is also “a big market” for business services in China, added Prof Buckley. Confucius Institutes are backed by the Chinese Ministry of Education, or Hanban.