China’s manufacturing activity continues to expand, but economy facing headwinds in new year
- Official manufacturing purchasing managers’ index (PMI) rose to 50.3 in December, up from 50.1 in November
- The official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, rose to 52.7 from 52.3 in November
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China’s factory activity unexpectedly accelerated again in December, but the slender margin of growth highlights the headwinds that the economy is set to face at the start of the new year, with policymakers under pressure to offer more support measures.
China’s factory activity had unexpectedly returned to expansion in November after seven months of decline, halting a run of two months of contraction, despite the overall economic slowdown in the second half of the year.
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Within the official manufacturing PMI, a subindex for production in December fell to 51.4, down from 52 in November, while a subindex for new orders came in at 49.7, up from 49.4 in November.
But new export orders shrank further, with the subindex coming in at 48.1 compared with 48.5 a month earlier.
Meanwhile, the official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, also rose to 52.7 in December from 52.3 in November. This was also above the Bloomberg survey of analysts, which had predicted a fall to 52.
Within the official non-manufacturing PMI, the construction subindex fell to 56.3 in December from 59.1 in November.
China’s official December composite PMI, which includes both manufacturing and services activity, remained unchanged at 52.2.
“The three major indices – manufacturing PMI, business activity index and composite index – all stayed in the expansionary territory, showing that the national economy as a whole is maintaining a recovery trend, and that the level of prosperity has recovered steadily,” NBS statistician Zhao Qinghe said.
The prices of some commodities have fallen, obviously, while the cost pressure on manufacturers has been eased to some extent
“The prices of some commodities have fallen, obviously, while the cost pressure on manufacturers has been eased to some extent,” he added.
Having rebounded from last year’s pandemic slump, a slowing manufacturing sector, debt problems in the property market, carbon emissions-related curbs and small-scale coronavirus outbreaks have led the world’s second-largest economy losing steam.
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Wen Bin, chief economist with China Minsheng Bank, said China’s overall economy is recovering, but domestic demand and the small business sector still remain weak.
He said the subindex to measure activities of small manufacturing enterprises, which fell to 46.5 per cent in December from 48.5 in November, hit a new low in the post-pandemic period.
“If the trend continues next year, Beijing will face greater pressure in stabilising growth,” he said. “It is very important to stabilise confidence and expectations in 2022.”
We cannot rule out the possible impact of the pandemic on [the US Federal Reserves’] pace of policy shifts, which may lead to resilience in China’s exports
Hongta Securities said in a research note that the latest PMI marked the start of an economic recovery, with the index set to continue to rise in 2022 thanks to supportive policies, easing pressure on costs, and the short-term resilience of overseas demand.
“Developing countries are likely to be challenged with greater pressure in containing the pandemic, and we cannot rule out the possible impact of the pandemic on [the US Federal Reserves’] pace of policy shifts, which may lead to resilience in China’s exports,” the report said.
Additional reporting by Ji Siqi
