China manufacturing activity continues to expand, beating expectations in December

China’s factory activity unexpectedly grew again in December, data released on Friday showed.

The official manufacturing purchasing managers’ index (PMI) rose to 50.3 in December, up from 50.1 in November, data from the National Bureau of Statistics (NBS) showed.

The figure was above the median forecast of a Bloomberg survey of analysts, which had predicted a slight fall to 50.

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China’s factory activity had unexpectedly returned to expansion in November after seven months of decline due to an improved power supply situation and lower raw material prices, halting a run of two months of contraction.

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.

A reading above 50 indicates growth in sector activity, while a reading below the mark represents contraction. The lower the reading is below 50, the faster the pace of contraction.

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.

The three major indices – manufacturing PMI, business activity index and composite index – all stayed in the expansionary territory, showing the national economy as a whole maintains a recovery trend and the level of prosperity has recovered steadily

Zhao Qinghe

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 the national economy as a whole maintains a recovery trend and the level of prosperity has recovered steadily,” said NBS statistician Zhao Qinghe.

Zhao attributed the recovery of manufacturing activities for two straight months to government stabilisation measures, including price controls and relief packages for businesses.

“The price of some commodities have fallen obviously, while the cost pressure on manufacturers has been eased to some extent,” he added.

China’s economy and manufacturing sector have been tested this year by high raw material prices, mass power rationing across industrial activity, supply chain disruptions and environmental curbs, as well as sporadic coronavirus outbreaks.

China unveils plan for mineral ‘self-sufficiency’ as supply risks multiply

An extensive crackdown on the property sector has also moderated investment in real estate and infrastructure.

China’s factory gate inflation in November rose by 12.9 per cent from a year earlier, down from the 26-year high of 13.5 per cent growth in October.

Overall, China’s economic recovery has been losing steam in the second half of this year with gross domestic product growth expected to drop below 4 per cent in the fourth quarter of 2021, way down from a 18.3 per cent rise in the first quarter.

2022 will be a year for the Chinese economy to climb out of the trough

Serena Zhou

Consumption, one of the pillars for the growth, is still lagging due to lingering coronavirus pandemic control measures.

“The figures of the coming quarter may be not good considering uncertainties brought by the pandemic outbreak in Xian and Omicron variant,” said Serena Zhou, a senior China economist at Mizuho Securities.

“However, potential government measures, including appropriate property policy easing, bigger infrastructure spending and rate cuts, will provide certain support for the growth. 2022 will be a year for the Chinese economy to climb out of the trough.”

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