China economy

China factory growth dips to 8-month low as pollution war bites

PUBLISHED : Wednesday, 31 January, 2018, 10:15am
UPDATED : Wednesday, 31 January, 2018, 10:00pm

Growth in China’s manufacturing sector slowed more than expected in January to an eight-month low in the face of a cooling property market and tighter pollution rules that have curtailed factory output.

The data, which gives global investors their first look at business conditions in China at the start of 2018, reinforced the view that the economy is beginning to gradually lose steam after growing by a better-than-expected 6.9 per cent last year.

The official Purchasing Managers’ Index released on Wednesday edged lower to 51.3 in January, compared with 51.6 in December. But it remained comfortably above the 50-point mark that separates growth from contraction on a monthly basis.

Analysts surveyed by Reuters had forecast the headline number would ease slightly to 51.5.

However, the overall factory reading still appeared relatively solid, marking the 19th straight month of expansion and reinforcing expectations that any slowdown in the economy would be gradual.

A separate PMI on the steel sector rose to 50.9 in January from 50.2 in December.

Why a cooling in China’s economy would be a good thing

Boosted by government infrastructure spending, a resilient property market and unexpected strength in exports, China’s manufacturing and industrial firms have been a major driver behind the solid economic growth last year.

But analysts say increasing trade friction with the United States could cloud the outlook for export manufacturers in the world’s second-largest economy.

US President Donald Trump slapped steep tariffs on imported washing machines and solar panels last week. China is the world’s biggest solar panel producer.

The decisions were the first of several potential tariff actions that Trump may take in the coming weeks and months. He is also considering recommendations on import restrictions for steel and aluminium and other trade sanctions against China over its intellectual property practices.

A slowing property market is also expected to dent China’s industrial activity this year, dampening demand for building materials from glass to steel.

Property investment growth in December alone moderated to 2.4 per cent from a year earlier, the lowest since July 2016.

“We see additional headwinds to growth this year from slowing credit growth and the cooling property sector,” economists at Capital Economics wrote in a research note on Tuesday.

“But there may be a short-lived rise in the PMIs over the next few months as the pollution crackdown, which was intended to reduce emissions this winter, comes to an end.”

Chinese provinces lower growth targets after Xi Jinping says don’t just chase higher figures

In a sign of broader economic resilience, a sister survey showed activity in China’s service sector accelerated to a four-month high in January.

The official non-manufacturing Purchasing Managers’ Index rose to 55.3 from 55 in December.

The services sector accounts for over half of China’s economy, with rising wages giving Chinese consumers more spending power.

China’s leaders are counting on growth in services and consumption to rebalance their economic growth model from its heavy reliance on investment and exports.