Growth in China's giant factory sector accelerated to a two-year high in January, a preliminary private survey showed, as manufacturers received more local and foreign orders in an encouraging sign for the country's economic rebound.
The HSBC flash purchasing managers' index (PMI) rose to 51.9 in January, the highest since January 2011 and above the 50-point level that shows accelerating growth in the sector from the previous month.
The PMI, the earliest preview of China's economic health in 2013, is the latest indication that the world's second-largest economy is steadily recovering from a near two-year cool-down.
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"Despite the still tepid external demand, the domestic-driven restocking process is likely to add steam to China's ongoing recovery in the coming months," Qu Hongbin, chief China economist at HSBC, said on Thursday.
HSBC said the sub-indices for output, new orders and employment that account for three quarters of the flash PMI all improved in January to hover above 50.
The output index climbed to 22-month highs while the employment sub-index was at its highest since May 2011.
Demand for Chinese exports also improved slightly this month, the flash index showed, but it shed little light on whether the pick-up would last.
China's exports had a surprisingly strong spurt in December, contributing to the country's emergence from a protracted cool-down, though analysts worry the rebound would be short-lived on soft U.S. and European demand.
Export Orders Recover
The new export orders sub-index rose to 50.1 in January, up from December's 49.2 that pointed to waning demand.
The sub-index was persistently weak in the past year, rising above the 50-point threshold for only three months in 2012 and at times contradicting China's official trade data.
HSBC's final PMI had showed China's new export orders cooling in December, at odds with government data that said exports zoomed to seven-month highs that month.
The jump in exports, alongside generous government
But the late spike in activity was not enough to prevent China from sinking into its slowest annual pace of economic expansion in 13 years in 2012, growing 7.8 percent.
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Many analysts are cautiously optimistic about China's economic prospects this year and are betting on steady state investment to stabilize growth.
Exports, however, are expected to remain a drag. A Reuters poll this week showed analysts predict China's annual economic growth would rebound a shade to 8.1 percent this year.
But faster growth is also expected to fuel inflation.
While a majority of the 24 analysts polled by Reuters believed China would not change its monetary policy this year, a third of them thought the central bank could raise interest rates in the second half of 2013.
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Thursday's flash PMI showed price pressures may be building. The input price sub-index was at its highest since September 2011, while the output price sub-index was steady after months of factory-gate deflation.
HSBC said its PMI survey is based on a poll of purchasing executives from over 420 manufacturing firms, and that the flash PMI is compiled from responses from 85 percent to 90 percent of that pool.