Positive China signal as official PMI shows growth

China's manufacturing activity expanded in December for a third straight month, official data showed Tuesday, adding to signs the world's number two economy is emerging from a prolonged downtrend.

The official purchasing managers' index (PMI) stood at 50.6 in December, unchanged from the previous month, according to the China Federation of Logistics and Purchasing and the National Bureau of Statistics.

The PMI is a widely watched barometer of the health of China's economy, with a reading above 50 indicating expansion while anything below points to contraction. October's reading was 50.2, after two months in negative territory.

The December result remained the joint-highest since April, but fell short of the median 51.0 forecast of five economists polled by Dow Jones Newswires.

The data came a day after banking giant HSBC's own PMI survey reached a 19-month high of 51.5, from 50.5 in November.

Bank of America Merrill Lynch economists Lu Ting and Hu Weijun questioned whether the official PMI data may have been slightly massaged.

"PMI data are heavily seasonally adjusted, especially during the year ends and beginnings," they wrote in a research note.

"It's likely that the NBS statisticians intentionally reported a conservative estimate within the allowable range to save better data for rainy days."

Questions about the transparency of Chinese economic data have been around for years, reflecting the closed nature of the country's Communist Party-led ruling structure.

Analysts expressed little surprise in November when a series of particularly strong figures were released during a key Party congress where the country's new leadership was about to be unveiled.

But Lu and Hu also said the official December reading was weighed down by a decline in export orders.

"It suggests that domestic demand was still the main driver for growth," they wrote, adding: "The Chinese government will continue its pro-growth policy stance at the moment to withstand weak external demand."

HSBC's PMI survey announced Monday also showed new export orders declining slightly from November.

China's actual exports for November, the latest month available, showed an increase of just 2.9 percent year-on-year, far below market expectations and highlighting worries over uncertainty in the United States and weakness in Europe -- key Chinese export markets.

Even so, a steady strengthening in China's manufacturing sector, and improvements in areas including broader industrial production and retail sales, have spurred optimism its economy is on the mend after a slowdown.

Growth has fallen for seven straight quarters and hit a more than three-year low of 7.4 percent in the three months to September.

Beijing is expected to release gross domestic product data for the past three months later in January.

Zhang Liqun, an analyst with the China Federation of Logistics and Purchasing, said in a release that the official PMI's failure to increase from November "shows the momentum of the pick-up in the economy is relatively weak".

Overall, however, he said the situation appears under control.

"The Chinese economy is currently in transition toward stable growth of between 7-8 percent," Zhang said.

--

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