Chinese manufacturing growth beat analysts' estimates in November, indicating the nation’s economic recovery is sustaining momentum amid government efforts to rein in credit growth.

The Purchasing Managers’ Index was 51.4, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Sunday. That’s the same reading as October, which was an 18-month high, and exceeded 24 out of 26 estimates in a Bloomberg News survey. A number above 50 signals expansion.

Stability in manufacturing growth in the world’s second-biggest economy may give Premier Li Keqiang more room to implement policy changes laid out after a Communist Party meeting last month. While industrial investment is picking up and retail sales have increased 13 percent so far this year, China faces headwinds that include industrial overcapacity, excessive corporate debt and slower export demand.

“Momentum seems to be quite stable at the moment so policy makers can be quite relaxed,” said Wang Tao, chief China economist at UBS AG in Hong Kong. “If anything, growth in the fourth quarter is not going to weaken as much as many people had expected,” Wang said, with “robust” production momentum and expanding domestic and export orders “pointing to pretty stable growth ahead.”

China’s benchmark Shanghai Composite Index of stocks rose 3.7 percent in November, the biggest monthly gain since August, on optimism that the reform package outlined by Communist Party leaders on Nov. 15 will bolster the economy and corporate earnings.

’Bottom Line’

Economists estimate growth in gross domestic product will slow to 7.5 percent next year from 7.6 percent this year, according to the median projection in Bloomberg News surveys last month. The government set a target for 7.5 percent expansion in 2013.

Premier Li said in October that China needs annual growth of 7.2 percent to keep unemployment stable after indicating in July his “bottom line” for expansion was 7 percent.

“If at some stage next year there is some kind of negative shock — exports collapse for some reason or there’s an unexpected credit freeze, they may relax policy a bit” because the government will defend its 7-percent lower limit, said Wang.

The median estimate for Sunday’s PMI was 51.1, with projections ranging from 50.8 to 51.5. The reading contrasts with a decline to 50.4 from October’s 50.9 in the preliminary figure of a separate gauge from HSBC Holdings Plc and Markit Economics released Nov. 21. The final number is due Monday.

Size Matters

The PMI for large companies in Sunday’s report rose to 52.4 from 52.3 in October, the highest level in 19 months, while the gauge for small companies slid to 48.3 from 48.5, the statistics bureau said.

“It’s clear that the improvements are coming from the big enterprises and there’s little improvement in the structure” of demand, said Hu Yifan, chief economist at Haitong International Securities Group Ltd. in Hong Kong. “Small companies will only recover when the overall macroeconomic situation recovers, once the economy starts to push from the bottom.”

The PMI survey from the statistics bureau is based on responses from purchasing managers in 3,000 manufacturing companies. The HSBC survey is based on responses from managers at more than 420 businesses, and is weighted toward smaller private companies.

A more forceful government crackdown in China on industrial overcapacity, weaker external demand and central bank measures to rein in credit growth and shadow banking, may limit a stronger rebound in manufacturing.

Cut Overcapacity

Data Sunday showed South Korea’s exports rose 0.2 percent in November from a year earlier, down from a revised 7.2 percent increase the previous month, as demand from Southeast Asian nations fell and gains in the won weighed on exporters’ competitiveness.

China in July ordered more than 1,400 companies in 19 industries to cut excess production capacity and the Communist Party’s reform document said local officials will be evaluated on controlling overcapacity.

The Hebei provincial government said last month it demolished iron and steel furnaces and Xingtai Longhai Iron & Steel Group Co., a unit of China’s biggest producer, Hebei Iron & Steel Group Co., has halted production because of operational difficulties, according to Shenzhen stock exchange filings from customer Hangzhou Boiler Group Co.

Companies’ borrowing costs are rising as money-market interest rates increase amid the central bank’s efforts to rein in credit growth. The seven-day repurchase rate, a gauge of funding availability in the banking system averaged 4.54 percent in November, up from an average 3.57 percent in May.

“The rising funding costs will eventually be passed on to the corporates, discouraging further investment expansion,” Liu Li-Gang and Zhou Hao, China economists at Australia & New Zealand Banking Group Ltd., wrote in a report Sunday.