China shakes off hard landing by reverting to bad old ways



China's gauge of manufacturing industry jumped to a seven-month high last month in the latest sign that Asia's powerhouse is springing back to life.

"It appears that the much-feared 'hard landing' has been averted. Growth has bottomed out," said Xianfang Ren, from IHS Global Insight.

The official purchasing managers' index (PMI) for November (Xetra: A0Z24E - news) jumped to 50.6, safely above the expansion line of 50 for the third month. It ends a protracted industrial slump over the past year that has left Chinese steel mills idle and ravaged shipbuilders.

Korea's exports rose 3.9pc last month and Japan (EUREX: FMJP.EX - news) 's industrial output has begun to rebound after months of contraction, suggesting the worst is over for the Pacific (KSE: 002790.KS - news) rim. "The signs of a turnaround in the global trade and manufacturing cycle are accumulating," said Joachim Fels, from Morgan (KOSDAQ: 019990.KQ - news) Stanley (Berlin: SYC.BE - news) .

China's slowdown was deliberately engineered by Beijing last year through property curbs and monetary tightening, but slipped control in mid-2012 as the economy came close to outright deflation. The regime has since opened the credit spigot and cranked up stimulus.

Mrs Xianfang said the PMI data wrongly heralded recovery in the spring but this time the revival of state-driven infrastructure projects and road-building points to a more durable rebound.

However, regional authorities are storing up trouble by "riding to the rescue of debt-laden firms which in a pure market economy would be going bust". She (SNP: ^SHEY - news) said the refusal to let market forces clear dead wood will sap the country's dynamism over time, but for now there is no denying the power of stimulus.

Moody's said China's recovery is on track for the next few years but the era of easy growth is coming to an end. The country will have to make the shift from top-down planning to free-market reform to remain vibrant into the next decade.

Incoming (OTC BB: ICNN.OB - news) premier Li Keqiang has given mixed signals over recent days. He said China must change its structure to avoid falling into the "middle-income trap" with a growing gap between rich and poor and "increasing social unrest".

Yet at the same time he has boosted hopes of another cycle of torrid growth and mega-projects by pledging that the urbanisation drive would be a "huge engine" of growth over the coming decade. Another 100m migrants are expected to reach Chinese cities by 2020, lifting the urbanisation rate to 60pc.

The comments sent shares of developers and property companies sharply higher last week. The rest of the stockmarket remains depressed, with the Shanghai composite index slumping below 2,000. It is down two-thirds from its peak in 2007, one of the world's worst bear markets in more than 50 years.

Jung Ulrich, from JP Morgan, said small investors have fled the market due to lack of trust in the opaque practices of state companies, but the securities regulator is pushing reforms to lure back capital. The rules have been changed to let foreigners take a 30pc stake in Shanghai's so-called "A" shares.

Mrs Jung said recent weakness offers a good entry point for investors. Industrial (Mexico: ST2000.MX - news) profits rose 20.5pc in October, and the ratio of equities to the M1 money supply is far below historic norms.

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