China’s economy is picking up momentum as activity in the country’s manufacturing sector continued to accelerate in November, expanding at its strongest pace in more than two years.
Data from the National Bureau of Statistics (NBS) showed that the manufacturing Purchasing Managers’ Index (PMI) rose to 51.7 in November from the previous month’s 51.2, above the 50-point mark that separates growth from contraction.
Growth has also accelerated in the services sector to levels not seen since 2014, pointing to improvement not only in heavy industries like steel but also in the broader economy.
Zhang Hangyan, analyst with the Chinese Academy of Social Sciences, said the country’s pro-growth policies and measures to cut overcapacity have worked, contributing to the continued improvement in PMI.
Despite a rocky start this year, China’s factories have perked up in recent months, buoyed by a government infrastructure building spree and a housing boom.
Fixed-asset investment maintained steady growth in the first ten months, up 8.3 percent year on year. Growth in property development investment was 6.6 percent during the period, higher than the 5.8 percent posted in the first nine months.
The yuan’s recent depreciation also contributed to the PMI’s improvement. The new export orders sub-index accelerated to 50.3 in November, the highest level in more than two years, as a weaker yuan is conducive to boosting the country’s exports.
The stronger-than-expected PMI data added to evidence that China’s economy has been stabilizing and is on track to meet the government’s target of 6.5 to 7 percent growth for the year.
China’s economy expanded 6.7 percent in the third quarter, unchanged from the previous two quarters.
The continued expansion of manufacturing shows that the economy has stabilized after a protracted slowdown, said Zhang Liqun, researcher with the Development Research Center of the State Council.
Earlier this week, Fitch Ratings raised its Chinese growth forecast by 0.1 percentage points to 6.7 percent for 2016, and to 6.4 percent for 2017.
“China’s efforts to stabilize the economy following the slowdown last year have been more successful than anticipated,” Fitch said in its statement.
Although the government’s 6.5-percent baseline target for GDP growth this year is firmly within reach, analysts have voiced concerns over the property sector, higher costs and inflationary pressures.
While property investment growth continued to quicken, some have suggested it could be due to a last-minute push by developers to complete construction projects as home sales and surging prices start to slow.
Raw material prices and logistics costs have stayed at high levels. Recent depreciation of the yuan has led to higher costs for importing materials, hitting computer and other electronics industries hard, said NBS statistician Zhao Qinghe.
Small companies were doing much worse than larger ones, with the small business PMI dropping to 47.4 from 48.3 in October.
Analysts also worried that inflationary pressures might increase substantially in the future. The PMI sub-index for raw material prices surged to 68.3 percent in November, up 5.7 percentage points from October.
As lenders limit lending to industries beset with overcapacity, raw material prices are expected to keep rising, pushing the Consumer Price Index (CPI) higher.
China’s CPI grew 2.1 percent year on year in October, marking its fastest pace in six months as food prices rose, while factory prices beat market expectations to accelerate to a 55-month high of 1.2 percent. Enditem