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China’s official non-manufacturing purchasing managers’ index (PMI), which measures sentiment in the service and construction sectors, fell to 55.7 last month. Photo: EPA-EFE

China’s economic activity slowed modestly in December, new data shows

  • China’s official manufacturing purchasing managers’ index (PMI) fell to 51.9 in December from 52.1 in November
  • The official non-manufacturing PMI, which measures sentiment in the service and construction sectors, fell to 55.7 from 56.4

China’s economy activity slowed modestly in December, led by declines in the manufacturing and services sectors, but remained relatively strong, according to new sentiment data released on Thursday.

Seasonal factors, including power blackouts across the country, likely contributed to the decline in the December data, but the drop may also indicate that Chinese growth is starting to plateau, some analysts said. Sentiment could fall further in the coming months, particularly given the impact of the Lunar New Year holiday in mid-February, they added.
The official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners in the world’s second-largest economy – fell to 51.9 last month from 52.1 in November, according to the National Bureau of Statistics (NBS). December’s reading was below the median prediction of a poll of analysts conducted by Bloomberg, which expected a smaller drop to 52.0.

China’s non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – fell to 55.7, below November’s reading of 56.4. Analysts had forecast the figure to drop slightly to 56.3.

A reading above 50.0 indicates growth in sector activity, while a reading below represents contraction.

The higher the reading above 50, the faster the pace of expansion.

Both readings indicated continued growth in the economy, but at a somewhat slower pace than in the previous month.

Zhou Hao, a senior economist with Commerzbank, said China’s economic recovery had roughly entered a plateauing period, and the slight PMI drop in December might be related to the power blackouts, which have forced many companies to reduce production.

“From the perspective of momentum, [the economy] probably has peaked and is gradually declining,” Zhou said, “but economic vitality is still quite high.”

He also projected that the PMI would continue to decline in the coming months. “We also need to count on seasonal factors [influencing economic activities], like the Spring Festival and so on,” he said.

The National Bureau of Statistics said Chinese economic activity remained strong in December despite the declines in both manufacturing and non-manufacturing sentiment.

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What is the purchasing managers' index (PMI)?

What is the purchasing managers' index (PMI)?

“In December, the Chinese economy continued to consolidate its recovery trend. Although the manufacturing, non-manufacturing and composite PMIs were all lower than the previous month by 0.2, 0.7 and 0.6 percentage points, they all remained at a relatively high level during the year, remaining above the 50 mark for the 10th consecutive month,” said Zhao Qinghe, a senior statistician at NBS.

“The pace of recovery in the manufacturing sector accelerated in the fourth quarter. Although the December manufacturing PMI dropped slightly, it was still only 0.2 percentage points lower than the year’s high in November. The overall manufacturing sector maintained a steady recovery, with the pace at a relatively high level for the year.”

“The non-manufacturing sector continued its steady recovery in December,” Zhao added.

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Within the non-manufacturing PMI, the subindex for the construction sector rose to 60.7 in December from 60.5 in November, while the service sector business activities index fell to 54.8 from 55.7.

Economists at investment bank Nomura attributed the drop in service sector sentiment to “sporadic Covid-19 outbreaks” which “forced some local governments to tighten some social-distancing requirements,” warning that the Covid-19 risks to the economy would rise during the Lunar New Year holiday period – February 11-17.

“As the Lunar New Year holidays are approaching, and migrant workers will start to return to their hometowns in late January, the risk of Covid-19 contagion will increase in early 2021; if this materialises, it could constrain the pace of the domestic recovery, despite continued policy support,” they said in a note.

Details of the manufacturing and non-manufacturing data showed a broad, though modest, decline in sentiment, as well as continued job cuts.

The non-manufacturing new orders subindex dropped to 51.9 in December from 52.8, while the employment subindex fell to 48.7 from 48.9, dropping farther below 50, meaning manufacturing firms shed jobs at a slightly faster pace in the latest month.

Within the official manufacturing PMI, the subindex for overall new orders eased to 53.6 from 53.9, as new export orders slipped to 51.3 in December from 51.5 in November, indicating continued growth but at a slower pace. Sentiment on production fell to 54.2 from 54.7. The employment subindex rose to 49.6 from 49.5, but remained below 50.

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The official composite PMI – a combination of the manufacturing and non-manufacturing indices – fell to 55.1 in December from 55.7 in November.

China’s overall economy has bounced back strongly from the impact of the pandemic after a record 6.8 per cent 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 expected to be the only Group of 20 nation 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.
China is due to release fourth quarter and 2020 GDP data on January 18. On Wednesday, the NBS announced that it had trimmed the country’s 2019 growth rate to 6.0 per cent from 6.1 per cent as part of its annual data-revision exercise.
This article appeared in the South China Morning Post print edition as: china’s growth still strong, data shows
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