China factory activity slowed in December: Private sector survey

But manufacturing activity across Asia showed signs of recovery as recent survey data indicated growth in late 2019.

Elsewhere in Asia, countries including South Korea, Myanmar, Vietnam and Thailand showed an expansion in manufacturing activity in November 2019 [File: Ann Wang/Reuters]
Elsewhere in Asia, countries including South Korea, Myanmar, Vietnam and Thailand showed an expansion in manufacturing activity in November 2019 [File: Ann Wang/Reuters]

China‘s factory activity expanded at a slower clip in December, pulling back from a three-year high the previous month as new orders softened, a private survey showed on Thursday.

But business confidence shot up amid thawing trade tensions with the United States, offering some support for the cooling economy. Beijing and Washington agreed last month on an initial deal that will de-escalate their prolonged trade war.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) for December eased to 51.5 from 51.8 the previous month missing analysts’ expectations that the reading would hold steady. But it remained above the 50-mark that separates expansion from contraction for the fifth straight month.

The findings, which focus mostly on small and export-oriented businesses, were less optimistic than those in an official survey released on Tuesday that showed activity expanded as production grew at the fastest pace in over a year and easing trade tensions revived export orders.

But one analyst said the improvement in business confidence and willingness to increase production and inventories were positive changes.

“Subdued business confidence was a major factor behind the economic slowdown this year,” said Zhengsheng Zhong, director of Macroeconomic Analysis at CEBM Group.

“As the phase one trade deal between China and the US has sent out positive signals, there is room for a recovery in business confidence, which should be able to help stabilise the economy.”

Adding to the more optimistic tone, the Caixin survey also showed firms were able to increase their selling prices for the first time in six months, signalling improving profitability.

Growth in China’s industrial and retail sectors beat expectations in November, as government stimulus measures boosted demand.

But the ailing manufacturing sector is not out of the woods yet, and analysts are unsure whether recent signs of improvement will be sustainable.

Demand remained wobbly in December, with total new orders growing more slowly and export orders expanding only marginally, the Caixin survey showed.

“The recovery in the manufacturing sector is still nascent,” said Nie Wen, an economist at Hwabao Trust in Shanghai, predicting the central bank will likely continue to ease policy until the economy is convincingly on more solid footing.

As expected, the People’s Bank of China moved quickly in 2020 to offer further support, announcing on New Year’s Day that it was cutting the amount of cash that all banks must hold as reserves. The move will release about 800 billion yuan ($114.91bn) in funds to shore up the slowing economy.

The PBOC has now cut banks’ reserve requirement ratio (RRR), which is the minimum amount of reserves that must be held by commercial banks, eight times since early 2018. In recent months, it has made modest cuts in some of its key lending rates.

But officials have repeatedly pledged not to resort to “flood-like” stimulus like that in past economic downturns, which left a mountain of debt and stoked fears of property market bubbles.

Beijing plans to set a lower economic growth target of about 6 percent in 2020, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said.

Still, some analysts believe growth could cool to 5.7 percent in 2020 even with additional support measures. Third-quarter growth of 6 percent was the weakest in nearly 30 years.

Asian uptick

Elsewhere in Asia, South Korea’s factory activity returned to growth in December, snapping seven straight months of contraction, helped by improving demand especially from abroad.

The country’s Nikkei/Markit PMI in December rose to 50.1, from 49.4 in November, its highest reading since April.

Manufacturing output expanded for the first time in 14 months, helped by new product launches and a general boost in demand conditions, the survey of South Korean firms showed.

New export orders index jumped to 51.3 in December, from 49.9 in the previous month and the highest reading since June 2018. Respondents reported greater sales to Asian markets such as Japan, China and Vietnam.

Total new orders, which snapped the 13th month of contraction, rose to 50.7 on stronger overall demand and penetration into new overseas markets.

“Perhaps most important was growth in overseas demand, the strongest increase in foreign workloads since mid-2018,” IHS Markit economist Joe Hayes said.

“Sustained growth in exports will be key to ensuring that South Korea’s manufacturing sector can positively contribute to overall economic output,” Hayes added.

South Korean exports in the first 20 days of December slid 2 percent on-year in value, marking the slowest fall in a year, as the recovery in demand from China and stabilising chip prices offered signs that a year-long run of declines may be nearing its end.

The PMI survey showed business sentiment for the next 12 months was cheered by optimism on greater demand in new products and hopes for the trend in the global manufacturing industry to pick up.

In Southeast Asia, manufacturing conditions continued to deteriorate in December but at their softest pace throughout a seven-month decline, as output rose for the first time since June.

Incoming new business rose for the first time in five months, highlighting some improvement in demand conditions, said Lewis Cooper, an economist at IHS Markit, in a statement on Thursday.

Myanmar, the Philippines, Vietnam and Thailand were among the countries in the region to record factory activity readings above the 50-point growth mark.

Source: Reuters

More from Economy
Most Read