Factory activity in China unexpectedly returned to growth in November for the first time in seven months, as domestic demand picked up on Beijing's accelerated stimulus measures to steady growth.
But gains were slight, and export demand remained sluggish. More U.S. tariffs are looming within weeks and Beijing and Washington are still haggling over the first phase of a trade deal.
With China's economic growth cooling to near 30-year lows and industrial profits shrinking, speculation is mounting that Beijing needs to roll out stimulus more quickly and more aggressively, even if it risks adding to a pile of debt.
The Purchasing Managers' Index (PMI) bounced back to 50.2 in November, its highest since March, China's National Bureau of Statistics (NBS) said on Saturday, above the 50-point mark that separates growth from contraction on a monthly basis.
The result compared with 49.3 in October. A Reuters poll showed analysts expected the November PMI to come in at 49.5.
The official factory gauge pointed to an improvement in China's vast manufacturing sector last month. Total new orders bounced back to expansionary territory with the sub-index rising to 51.3, the highest level seen since April.
That indicates domestic consumption firmed up after Beijing repeatedly urged local governments to kick stimulus up a gear to meet economic goals before year-end. Factory output also rose to 52.6 in November, marking the strongest pace since March.
"In the short term, we may have already passed the low point where the economy hit the bottom," Zhang Deli, a macro analyst with Lianxun Securities, wrote in a note.
Beijing has front-loaded 1 trillion yuan ($142 billion) of a 2020 local government special bonds quota to this year and has urged that they be issued and used as early as possible to boost infrastructure investment. Some analysts say that could be a sign that the government is worried about downward economic pressure.
Zhang attributed to the better-than-expected November PMI to a government push on infrastructure investment, less property market control, and a de-escalation in U.S.-China trade tension in October, when both sides said they had substantially reached a "Phase 1" agreement and the United States delayed a tariff increase scheduled to take place on October 15.
But recent developments underscore rising uncertainties in the trade conflict, which bodes ill for the outlook for external demand. New export orders fell for an 18th straight month in November, albeit at a slower pace, with the sub-index rising to 48.8 from 47.0 in October.
U.S. President Donald Trump said this week that the world's largest economies are close to reaching agreement on the first phase deal. But trade experts and people close to the White House said it could slide into the new year, given China is pressing for more extensive tariff rollbacks.
An additional 15% in U.S. tariffs are scheduled to take effect on about $156 billion of Chinese products on Dec. 15.
Trump has also highlighted Washington's support for protesters in Hong Kong, potentially a huge sore point for China.
The PMI survey also indicated factories continued to cut jobs in November despite slightly improved business confidence, while it signalled a further deterioration in profits for Chinese manufacturers, with output prices falling into a three-month low.
Beijing's drive to guide more bank lending towards small private firms appeared to be working. Their PMI index recorded the strongest gain in November, compared to medium-sized and large firms, but their performance was still the poorest of the three at 49.4.
Growth in China's services sector also quickened in November, while construction activity held up well, but growth in the latter slowed compared to the previous month, a separate statistics bureau survey showed.
The official non-manufacturing PMI picked up to 54.4, recovering from October's 52.8, the lowest point since February 2016.
A strong services sector has offered Beijing some cushioning effect as manufacturers face growing difficulties in securing demand both at home and abroad. However, the sector's resilience weakened late last year amid a broader economic slowdown.
Some analysts have also cast doubt over the prospects for robust growth in the construction sector.
"After all, we are still waiting for more definitive signs of a recovery in the credit cycle. Meanwhile, sentiment in the property market continues to cool down, which clouds the outlook of the sustainability of property investment growth," researchers from China International Capital Corporation (CICC) said in a note this week.
China's gross domestic product growth is expected to slow to a near three-decade low of 6.2% in 2019 and then hit 5.9% in 2020, according to a Reuters poll.