Manufacturing activity expanded for the first time in 13 months, according to a key index gauging factory output.

The HSBC Purchasing Managers' Index hit 50.4 in November. A reading above 50 indicates expansion.

The index has been gradually improving over the past three months. It stood at 47.9 in September and 49.5 in October.

Export orders showed a faster-than-expected increase, with an index reading of 52.4, the highest level since May 2010.

The index indicates that economic recovery "continues to gain momentum toward the end of the year," said Qu Hong-bin, chief China economist with HSBC.

In Zhejiang province, a major manufacturing hub, entrepreneurs "do sense the coming of a recovery and are confident about the outlook," said Chen Jun, deputy chairman of Zhejiang Chamber of Commerce in Beijing.

Chen was speaking during a visit to a 2-million-square-meter industrial park in Baixiang county, Hebei province. Zhejiang manufacturers plan to expand their operations to northern China as business picks up, he said.

However, Qu pointed out that the recovery is still in its early stages and global economic growth remains fragile. Policies to support the economy's momentum should be continued, he said.

Wei Jianguo, former vice-minister of commerce, said: "China may face a more difficult situation in foreign trade next year, as any economic recovery in Europe and the United States may stutter."

The eurozone could fall deeper into recession in 2013, dampening demand for Chinese exports, said Wei, who is now secretary-general of the China Center for International Economic Exchanges, a government think tank.

He voiced pessimism over the US economy and the looming fiscal cliff.

The US will probably launch a fourth round of quantitative easing next year, he said, and will increase appreciation pressure on the yuan, further diluting China's foreign exchange reserves, he said.

China's economic indicators have been mostly positive since October after GDP growth slowed to a 14-quarter low in September.

But companies have also reported soaring costs in labor and difficulty in securing credit.

Lin Hao, manager of a Wenzhou plastics company, said that many small and medium-sized companies still find it impossible to get loans from commercial banks despite consistent calls from local governments to provide them with better financial services. "We have to turn to private moneylenders, who charge an interest rate of at least 20 percent," he said.

Lin said his company earned about 3 million yuan ($477,000) in profits this year, but they had to pay about 4 million yuan in interest.

Consequently, the company laid off about 10 percent of its employees.

Zhang Zhiwei, chief China economist at Nomura Securities, was confident of final quarter growth above 8 percent in a research note.

In terms of industrial production, Huang Yiping, an economist with Barclays, said that it is likely to rise, with GDP growth to reach 7.8 percent in the last three months from 7.4 percent in the third quarter.

"We see upside risks to our 2013 GDP growth forecast of 7.6 percent. On the other hand, we continue to expect a moderate rather than a sharp rebound," Huang said.

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