Fastest Chinese manufacturing growth in 2 years: HSBC

January has seen China’s manufacturing sector expand at its fastest pace in two years, HSBC reported on Thursday.

The increased activity is the latest sign of recovery in the world’s second largest economy.

The West reports that the British banker’s preliminary purchasing managers' index (PMI) reached 51.9 for this month, up from a final 51.5 in December. The January figure is the highest for 24 months.

The index tracks manufacturing activity and is closely watched as an indicator of economic health.

A reading above 50 indicates expansion, a number which hasn’t been reached in the 12 consecutive months before November 2012.

According to the PMI that means 12 months of contraction.

Hong Kong-based HSBC economist Qu Hongbin, said improving demand within China has encouraged local manufacturers to increase production.

Hongbin cautioned that foreign markets remained sluggish.

"Thanks to the continuous gains in new business, manufacturers accelerated production by additional hiring and more purchases," he said.

"Despite the still tepid external demand, the domestic-driven re-stocking process is likely to add steam to China's ongoing recovery in the coming months."

China's economy expanded 7.8 per cent last year, its lowest annual figure since 1999.

But as retail sales and industrial output strengthened, China attained a growth rate of 7.9 per cent in the final three months of 2012.

Zhang Zhiwei, Nomura International's China economist in Hong Kong, said the stronger PMI reading in January reinforced predictions that further positive momentum would be experienced in the first quarter.

Zhiwei however warned that with rising inflation the government would focus on tightening policy.

"The government will be more concerned on inflation and its policies will be more careful to control risks, leading year-on-year credit growth to slow down," he told AFP.

"Therefore economic growth in the second half of the year is likely to slow as well."

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