Private survey shows economy getting back on feet as stimulus takes effect

China's manufacturing activity returned to expansion in November, a private survey showed on Friday, adding to signs that the Chinese economy is gradually getting back on its feet on the back of a series of stimulus measures taking effect gradually.

The Caixin China General Manufacturing Purchasing Managers' Index — which gauges operating conditions in the sector — rose to 50.7 in November from 49.5 in October, hitting a three-month high and showing signs of improvement in the area, media group Caixin said on Friday.

A PMI reading above 50 signifies expansion, while one below 50 signals contraction.

Wang Zhe, a senior economist at Caixin Insight Group, linked the improvement in the manufacturing sector to a rebound in both supply and demand, saying the macroeconomy has been recovering with household consumption, industrial production and market expectations all improving.

The Caixin report showed that manufacturing output returned to expansion in November after a contraction in October with the subindex coming in above 50 for the third time in the past four months. The gauge for new orders remained in the expansionary territory for the fourth consecutive month, recording the highest reading since June.

Notably, business optimism rebounded in November, as manufacturers' sentiment improved with the reading for manufacturers' expectations for future output hitting a four-month high.

However, surveyed companies were still worried about the global economic outlook in the next 12 months, according to the report.

Despite the improvement in the latest PMI reading, Wang cautioned that external demand remained sluggish, and employment was still weak.

The report showed that the gauge for new export orders contracted for the fifth straight month in November. The reading for employment recorded a contraction for the eighth time in the past nine months, as manufacturers generally remained cautious about hiring.

"The domestic and foreign demand is still insufficient, employment pressures remain high and economic recovery has not yet found a solid footing," Wang said.

Looking ahead, Wang said focus should be on expanding consumption, increasing incomes, promoting employment and stabilizing expectations. "Ultimately, policies should aim to lay a solid foundation for long-term economic growth and cultivate long-lasting market confidence."

Considering the slightly better-than-expected third-quarter economic performance and the low comparison base in the previous year, Wang said "the annual growth target of around 5 percent this year looks attainable".

Data released by the National Bureau of Statistics on Thursday offer the latest official snapshot of the pressures facing the economy, as the official PMI for China's manufacturing sector fell to 49.4 in November from 49.5 in October.

China's non-manufacturing PMI came in at 50.2 in November, down from 50.6 a month earlier. Also, the country's official composite PMI, which includes both manufacturing and non-manufacturing activities, came in at 50.4 in November compared with 50.7 in October, according to the NBS.

Yang Xin, an analyst with Hongta Securities, said the latest official PMI readings show market supply and demand are still weak, and that there appear to be signs of a slight slowdown in economic growth. More efforts will be needed to boost demand, Yang said.

Xiong Yuan, chief economist at Guosheng Securities, said, "The level of economic prosperity has fallen in China, and the foundation for continued recovery still needs consolidation."

While the December PMI may still face seasonal downward pressures, most economic indicators will likely record year-on-year growth, and China will exceed its annual growth target of around 5 percent this year, Xiong said.

Looking ahead, Xiong said he expects to see further rate cuts and a reduction in the reserve requirement ratio this month, adding China will likely implement expansionary policies to boost the economy next year.