China of­fi­cial fac­tory PMI seen dip­ping in De­cem­ber

The Financial Express - - INTERNATIONAL -

Bei­jing, Dec 30: Growth in China’s fac­tory ac­tiv­ity may have pulled back slightly in De­cem­ber, a Reuters poll showed, re­in­forc­ing views that the world’s sec­ond-largest econ­omy could lose some steam at the year end while Bei­jing is shift­ing its fo­cus to struc­tural re­forms.

China’s of­fi­cial man­u­fac­tur­ing pur­chas­ing man­agers’ in­dex (PMI) likely eased to 51.2 in De­cem­ber, down a touch from Novem­ber’s 51.4, ac­cord­ing to the me­dian fore­cast of 11 econ­o­mists in the poll. A read­ing above 50 in­di­cates ex­pand­ing ac­tiv­ity while one be­low that level points to a con­trac­tion.

A pre­lim­i­nary PMI sur­vey re­leased in the mid­dle of De­cem­ber by HSBC and Markit Eco­nom­ics showed that the fac­tory sec­tor ac­tiv­ity grew at the slow­est pace in three months due to sub­dued out­put.

An­a­lysts said lack­lus­tre data for power and steel out­put in the first 20 days of De­cem­ber also sig­nalled soft de­mand both at home and abroad.

“Man­u­fac­tur­ers tend to keep their pur­chase stocks at low lev­els to hedge against un-


cer­tain­ties, as they can mainly get short-term ex­ter­nal or­ders while do­mes­tic de­mand is not strong,” said Nie Wen, an an­a­lyst at Hwabao Trust.

He added that tight liq­uid­ity con­di­tions in the money mar­ket and ris­ing fund­ing costs in the real econ­omy also crimped in­vest­ment ap­petite from do­mes­tic firms. China’s money mar­ket rates soared late last week to the high­est level since a cash crunch in June, as the cen­tral bank en­gi­neered a tight stance to push banks to im­prove their as­set and li­a­bil­ity struc­ture.

The money mar­ket squeeze was later eased af­ter the cen­tral bank in­jected cash and fis­cal de­posits en­tered the bank­ing sys­tem.

But of­fi­cials and bankers agreed that China’s bor­row­ing costs would have a ten­dency to go up­wards in the longer-term, as Bei­jing moves to­wards a mar­ket-based in­ter­est rate regime.

Apart from down­side risks in the do­mes­tic econ­omy, China is still fac­ing ex­ter­nal head­winds, with trade growth in 2013 set to miss the an­nual tar­get of 8 per­cent, ac­cord­ing to an es­ti­mate given by the com­merce min­is­ter Gao Hucheng On Fri­day.

Econ­o­mists say the econ­omy is likely to show weaker mo­men­tum in the fi­nal quar­ter, af­ter a re­bound be­tween July and Septem­ber, due to slow­ing credit growth and a fall in re­stock­ing de­mand.

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