November China manufacturing index the same as in October

China manufacturing index stood at 51.4 in November, according to the National Bureau of Statistics, the same reading as in October.

Even so, 51.4 is an 18-month high and beat most economists’ estimates. Any reading above 50 means expansion.

China’s biggest companies, the majority of which are owned by the state, are driving the manufacturing rebound.

Economists say the latest China manufacturing index reading shows that the country’s economic recovery is gathering steam.

Manufacturing growth is good news for Premier Li Kegiang, as it makes it easier for him to introduce policy changes that resulted from a Communist Party meeting in October.

China manufacturing facing challenges

Despite growing retail sales (13% growth so far this year) and industrial investment, there is still industrial overcapacity, as well as weak demand for exports and very high corporate debt.

Bloomberg News quoted Wang Tao, chief China economist at UBS, Hong Kong, who said:

“Momentum seems to be quite stable at the moment so policymakers can be quite relaxed. If anything, growth in the fourth quarter is not going to weaken as much as many people had expected.”

For China’s unemployment not to rise its economy needs to grow by at least 7.2% each year, Premier Li said last month. Hence, the Chinese government set a GDP growth target of 7.5% for this year.

Economists predict this year’s GDP growth will reach 7.6%, easing slightly to 7.5% in 2014, according to a Bloomberg1 survey.

Small Chinese manufacturers struggling

While China’s largest manufacturers are doing well, its medium-sized companies are improving more modestly, and the small ones are struggling.

PMI (purchasing managers’ index) in mid-sized companies rose to 50.2 in November, from 49.6 in the previous quarter. However, for small enterprises the reading continued to fall, sliding to 48.3 in November after rising slightly to 49.4 in July.

Medium- and smaller-sized manufacturers have been hurt by the Central Bank clamping down on shadow bank lending at local level and tighter liquidity.

The Wall Street Journal quoted Andrew Polk, an economist at the Conference Board, who said “The momentum we see is state-led and policy-led, and from that perspective, it is a mixed performance.”

Polk expects China’s GDP growth to slow to 7% next year.