China manufacturing sentiment hits highest level in 10 years in November

The Caixin/Markit manufacturing purchasing managers’ index (PMI) rose to 54.9 in November from 53.6 in October
On Monday, China’s official manufacturing purchasing managers’ index (PMI) was 52.1 in November, up from 51.4 in October to its highest since September 2017

China manufacturing

Andrew Mullen

Published: 9:51am, 1 Dec 2020

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China’s manufacturing activity extended its strong growth in November, according to data released on Tuesday.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) rose to 54.9 in November from 53.6 in October, the sharpest improvement in conditions since November 2010.

The health of the sector has now improved in each of the past seven months, underlining China’s strong recovery from the coronavirus. A Bloomberg survey had expected a slight decline to 53.5.

The Caixin/Markit PMI focuses on small, private firms unlike the official index whose respondents come mostly from larger, state-owned firms.

A PMI reading of 50 separates growth from contraction. The further the level above or below 50, the faster the expansion or contraction.

Manufacturing recovered at a faster clip in November as supply and demand improved at the same time

Wang Zhe

“Manufacturing recovered at a faster clip in November as supply and demand improved at the same time,” said Wang Zhe, senior economist at Caixin Insight Group.

“Employment recovered markedly and overseas demand kept expanding. Manufacturing enterprises added to their inventories to meet demand and they were quite confident about the economic outlook for the next 12 months. The gauge for future output expectations stayed high.

“We expect the economic recovery in the post-epidemic era to continue for several months. At the same time, deciding how to gradually withdraw the easing policies launched during the epidemic will require careful planning as uncertainties still exist inside and outside China.”

On Monday, China’s official manufacturing purchasing managers’ index (PMI) rose to 52.1 in November from 51.4 in October, reaching its highest level since September 2017.

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China’s overall economy has bounced back strongly from the impact of the pandemic after a record contraction in the first three months of the year.

Gross domestic product grew by 4.9 per cent in the third quarter compared with a year earlier and China is the only Group of 20 nation expected to see positive growth in 2020 due to its better-than-expected recovery, which has been fuelled largely by state-led infrastructure investment and a property boom.

Within the Caixin/Markit manufacturing PMI, overall sales expanded at the quickest rate for a decade, led by firmer domestic demand.

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What is the purchasing managers' index (PMI)?

Increased production requirements and higher levels of new work also led companies to expand their workforce numbers again in November, with the rate of job creation the strongest since May 2011. The data also revealed a substantial increase in purchasing activity, with the rate of growth the steepest since the start of 2011.

“Unlike the official survey which saw the delivery times measure soften, all components in the Caixin survey improved,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“Particularly encouraging was the employment component, which rose to its highest since 2011. This supports our view that a tightening labour market will drive a further recovery in consumption over the coming months.

“Similar to the official survey, the export orders component of the Caixin PMI increased, from 51.0 to 53.3. This suggests that foreign demand for Covid-19 related products remains strong amid fresh lockdowns abroad and hints at a further acceleration in export growth in the near-term.”

This article appeared in the South China Morning Post print edition as: Small factories keep up strong growth in activity

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