China’s recovery is boosting Asian factories, but the problems are foreseeable.

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China’s manufacturing sector expanded last month at the fastest pace in a decade, according to new data; South Korean and Japanese firms are stabilizing.

Asian factories continued their steady recovery in November thanks to a boom in China’s economic powerhouse, private polls showed on Tuesday, raising hopes that the region would shake off resistance to the COVID 19 crisis.

However, a global resurgence of coronavirus infections has made the outlook highly uncertain and is keeping governments and central banks under pressure to maintain or intensify their massive stimulus programs, analysts say.

China’s factory economy accelerated in November at the fastest pace in a decade, according to a private survey on Tuesday, a sign that the world’s second largest economy is recovering to pre-pandemic levels.

The optimistic results were in line with an official survey which showed that activity in Chinese factories expanded at the fastest pace in more than three years in November, with growth in the services sector reaching a multi-year high.

Return to normality?

“The manufacturing sector continued to recover and the economy increasingly returned to normality as the impact(s) of the domestic COVID 19 epidemic subsided,” said Wang Zhe, senior economist at Caixin Insight Group.

China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 54.9 from 53.6 in October, its highest level since November 2010.

[Bloomberg]

For the seventh consecutive month, the indicator remained well above the 50 mark, which separates growth and contraction.

A steady recovery in global demand also helped bring Japan’s factory activity closer to stabilization in November, while South Korea accelerated at the fastest pace in nearly a decade.

The final PMI of Jibun Bank Japan Manufacturing reached 49.0 in November, up from 48.7 the previous month and a preliminary 48.3.

South Korea’s IHS Markite PMI rose from 51.2 in October to 52.9 in November, the highest level since February 2011 and the second month of activity expansion.

Factory activity also increased in Taiwan and Indonesia, a sign that the revival of Chinese demand is supporting the region’s economy.

However, many analysts remain cautious about the outlook as global and domestic demand is vulnerable to infection trends.

“Japan’s economy probably slowed down in July-September, but averted a contraction as exports picked up and government campaigns to support demand took effect,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

“But the economy could contract in January-March, when households are again holding back on spending. If companies in the service sector, which are suffering from the slump in sales, cut back on spending, it could affect jobs and investment spending”.

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