World Economy

Chinese manufacturing expanded more than expected in November

Key Points
  • China's official manufacturing Purchasing Managers' Index for November was at 51.8
  • Economists in a Reuters poll expected official PMI to come in at 51.4 in November, slower than 51.6 in October
Feng Li | Getty Images

China reported on Thursday that factory activity expanded at a quicker pace in November, with the official manufacturing Purchasing Managers' Index coming in at 51.8 — topping expectations.

Economists in a Reuters poll had expected official PMI in the world's second-largest economy to come in at 51.4 this month, which would have been slower than the 51.6 posted for October.

China's services sector also saw activity pick up, with its PMI reading accelerating to 54.8 in November from the previous month's 54.3, official data showed.

A reading above 50 indicates expansion, while a reading below that signals contraction.

"The latest official PMI readings suggest that growth momentum held up well this month," Julian Evans-Pritchard, China economist at Capital Economics, said in a note following the data release.

The Chinese economy has largely performed better-than-expected this year, boosted by government infrastructure spending, a resilient property market and strength in exports, Reuters reported. That helped the country's gross domestic product to grow close to 7 percent in the first nine months of 2017.

But authorities have stepped up efforts to steer the economy towards a more sustainable growth trajectory and away from its reliance on debt. In recent weeks, Beijing tightened rules to clamp down on risky behavior in the financial sector, which spooked investors and sparked a sell off in mainland markets.

The latest PMI readings may indicate that the situation in China is not as bad as many have expected, but economists said a slowdown in growth is still in the cards.

Louis Kuijs, head of Asia economics at Oxford Economics, said China's growth will moderate starting next year. That's necessary for the country, he said, but it's "not a big deal."

"I think China will continue to grow decently over the coming 10 years, I also think that they will slow down next year. Growth in China next year is going to be weaker than growth this year, but that's not a big deal," he told CNBC, adding that GDP will likely slow to the lower end of 6 percent.

For some, the release of a private PMI survey will paint a better picture of the economic situation in China. The Caixin/Markit manufacturing PMI is expected to be published on Friday, with the services PMI reading coming next Tuesday.

The private surveys tend to focus on small and mid-sized firms.

"We are wary of putting too much faith in the official PMIs given that they have provided false signals in the past," wrote Evans-Pritchard.

"What's more, we doubt the current momentum in manufacturing will be sustained given that the sector faces increasing headwinds in the months ahead from the anti-pollution crackdown, slower credit growth, reduced fiscal support and a cooling property market," he added.