More signs that China's manufacturing sector is on the mend and that growth in the world's number two economy is picking up pace.

The China Flash HSBC Purchasing Managers' Index (PMI) rose for the third consecutive month, coming in at 50.4 for November, up from 49.5 the previous month.

This is the first time that the reading has moved above the 50 threshold in more than a year.

The improvement in November's flash reading is broad-based.

The major PMI components, output for instance, picked up notably from 48.2 to 51.3 in November.

Export orders also rose sharply, from 46.7 to 52.4 -- a jump of 5.7 percentage points.

Retail sales, and fixed asset investment also showed improvement, confirming that an economic recovery in China is gaining traction.

The Chinese economy is on-track to grow by at least 8 percent this year, according to market consensus.

The impact of policy easing back in May has seen a pick-up in infrastructure investments, and more fiscal expenditure.

The policy mix is expected to continue -- a neutral monetary policy, coupled with proactive fiscal measures.

That means the central bank will keep rates unchanged and focus on liquidity management via reverse repo.

Two or three more reserve requirement ratios cuts at banks may also be seen next year.

But while things are looking brighter on the mainland, external factors remain a key risk on China's road to recovery next year.

Martin Hennecke, associate director at Tyche Group said: "It's good for China to have its own strong economy and domestic demand, and the trade within Asia.

"Whether or not, that's going to keep going now, forward and improving, that very much depends on how the crisis will unfold in the West, no one can really know that."

Meanwhile, regional markets rallied on the news -- the Hang Seng index gaining one percent on the news, although the Shanghai Composite fell 0.7 percent on profit-taking.

The yuan rose by the maximum daily limit against the dollar.

channelnewsasia.com