FACTORY activity showed surprising signs of improvement in November, with growth picking up to a near three-year high, a private sector survey showed yesterday, reinforcing upbeat government data released over the weekend.

But analysts remain concerned about deflationary risks in the sector, unconvinced that the worst is over yet for Chinese manufacturers. They say the sub-indexes of both surveys painted a picture of patchy recovery that will be difficult to sustain.

The Caixin/Markit manufacturing Purchasing Managers’ Index (PMI) index rose to 51.8 in November from 51.7 in the previous month, marking the fastest expansion since December 2016, when it was 51.9.

The 50-mark separates expansion from contraction on a monthly basis. Economists polled previously had expected a dip to 51.4.

Total new orders and factory production remained at buoyant levels in November, although they both eased slightly from record highs in the previous month, when they grew the fastest in over six years and nearly three years, respectively.

Larry Hu, chief China economist at Macquarie Group, cautioned that the improvement could be hit as many one-off tailwinds wear off, such as better sentiment on trade deal and warm weather.

Business confidence slipped and companies were reluctant to replenish their inventories, worried about the uncertain outlook for demand and the prolonged China-U.S. trade tensions, the survey showed.

The Caixin survey showed sub-index for new export orders came in at 51, marginally below that in October, when it was the highest since February 2018.

Resilience in the sector led to a notable recovery in the labor market in the month, with companies adding workers for the first time in eight months.

(SD-Agencies)