China December Official PMI Seen at 8-Month High, Recovery on Track

Workers assemble sedans at the Dongfeng car factory in Wuhan, China.
ChinaFotoPress | Getty Images
Workers assemble sedans at the Dongfeng car factory in Wuhan, China.

China's factory activity in December probably expanded at its fastest pace in eight months, reinforcing signs of a steady recovery in the world's second-largest economy underpinned by pro-growth policies.

The official purchasing managers' index (PMI) in December may have hit 51.0 from November's 50.6, the median estimate of 10 economists polled by Reuters showed, suggesting factory activity was gaining pace on the back of stronger domestic demand.

A figure above 50 indicates that growth is accelerating, while one below 50 shows slowing growth.

(Read More: Coming Soon: China's Growth Resurgence?)

"Apart from the PMI prints, industrial production and industrial profits suggest manufacturing activities have stabilized, and forthcoming recovery is likely to be domestically driven," said Connie Tse, an economist at Forecast Pte in Singapore.

"Despite the improvement in recent manufacturing activities, still volatile trade data underscores the fact that the export sector is not out of the woods yet."

Xie Yaxuan, an analyst at Merchants Securities, said manufacturing activity could be buoyed by brisk consumption in the final month of the year and the end of a destocking cycle.

"Overall, economic indicators in December will continue to show modest improvement," Xie said.

(Read More: Factory Surveys Shows China Reviving, Global Rebound Fragile)

A flash HSBC PMI published on Dec. 14 showed China's vast manufacturing sector expanded in December at its fastest pace in 14 months as new orders and employment rose.

The official PMI generally paints a rosier picture of the factory sector than the HSBC PMI as it focuses on big, state-owned firms, while the HSBC PMI targets smaller, private firms. There are also differing approaches to seasonal adjustment between the two surveys.

Pro-Growth Policies

China's economy has shown signs of a modest recovery in the fourth quarter, with an array of indicators from factory output to retail sales and investment pointing to an uptick, as Beijing's pro-growth policies gain traction.

Such measures include monetary policy easing and quickening infrastructure investment that have partially offset weak external demand for China's goods because of a global slowdown.

Annual growth of China's industrial profits quickened to 22.8 percent in November from October's 20.5 percent, official data showed on Thursday.

China's annual economic growth dipped to 7.4 percent in the third quarter, slowing for seven quarters in a row and leaving the economy on course for its weakest showing since 1999.

Analysts, who expect the economy to grow around 7.7 percent in 2012, have cautioned against headwinds ahead, despite a pledge by Chinese leaders to fine-tune policy next year.

Vice Finance Minister Li Yong said in comments published on Wednesday that China faces rising risks in its banking sector and pressure on government revenue in 2013. He said the economic recovery could be hampered by weak external demand and domestic constraints.

The official PMI survey will be released on Jan. 1 (Tuesday) at 0100 GMT, after the final HSBC PMI reading due to published on Monday, Dec. 31 at 0145 GMT.