China's manufacturing sector expanded faster in December thanks to a sharp rise in production, rapid job creation and input price increases, according to the HSBC Purchasing Managers' Index yesterday.

The HSBC PMI, based on a poll of purchasing executives in manufacturing and designed to provide a snapshot of business conditions in industry, rose to a record high of 56.1 last month from November's 55.7, the bank said.

The average reading of the index for the last three months of 2009 was the highest in the survey's history since April 2004.

The HSBC PMI has been above 50, normally reflecting an expansion, for nine consecutive months.

"The second-round effect of stimulus measures is filtering through to substantially benefit the manufacturing sector as we expected," said Qu Hongbin, HSBC's chief economist.

Qu said strong demand has bolstered the outlook of manufacturers while inflation will be manageable in the coming months.

The latest data pointed to a substantial increase in output and new business, the bank said. Firms continued to add to their labor force while stocks of purchases rose for the second time in three months.

The bank's PMI was largely in line with the official PMI, released by the China Federation of Logistics and Purchasing last Friday.

The official PMI rose to 56.6 in December from 55.2 a month earlier, a 20-month high, and extended the expansionary momentum (above 50) for a 10th straight month.

It also showed buoyant market demand, faster rate of job creation, and steeper rise in raw material prices.

Of the 11 component indices under the official PMI, the output index rose to 61.4 last month from November's 59.4, the highest since March 2008.

The new orders index rose to 61 last month from 58.4 in November and the employment index swelled to 52.2 from 51.1. The input price (of raw materials) surged to 66.7 from 63.4, a sign of growing inflationary pressure.

"Firms are restocking raw materials, possibly due to stronger orders and higher inflationary expectations on raw material prices," said Sun Mingchun, an economist at the Nomura International (HK) Ltd. "It is an early sign that the economy may be entering an overheating stage."

The two PMIs indicated that recovery in China's economy continued unabated, an economist said.

"Overall, the December PMI data suggested China's economy is continuing its V-shaped recovery, which should last into the first quarter of this year," said Sun.