China’s Manufacturing Sector Shows Signs of Strength
Beijing attributes pickup to a drop in commodity prices after governmental intervention to stabilize supply and prices
China’s manufacturing and service sectors showed unexpected signs of recovery to close out the year, according to a pair of official gauges released Friday, as Beijing moved to arrest a downward spiral triggered by a real-estate slump and coronavirus outbreaks.
China’s official manufacturing purchasing managers index rose to 50.3 in December, up from November’s 50.1, the National Bureau of Statistics reported Friday. The result was better than the 50.0 median expected by economists polled by The Wall Street Journal. It also marked the second straight month in which the manufacturing PMI figure remained above the 50 mark that separates expansion from contraction.
The statistics bureau attributed the pickup in manufacturing sentiment to a drop in commodity prices prompted by governmental intervention to stabilize supply and prices, which in turn has relieved cost pressures for manufacturers.
However, a subindex of factory production weakened to 51.4 in December, lower than November’s reading of 52, as production in the textiles, oil and coal industries each languished below the 50 mark, according to the official data.
After rebounding from an earlier power crunch that affected many industries in the fall, the lockdown of factories in the Yangtze River Delta earlier this month following a fresh round of coronavirus infections is expected to hit China’s year-end industrial output and exports figures, which are set to be released in the coming weeks.
Even as production weakened, market demand for China’s factory output showed marginal improvement in December, with a measure of domestic orders increasing slightly. A subindex tracking total new orders rose to 49.7 in December, higher than 49.4 in November but still in contractionary territory. The subindex measuring new export orders, however, weakened to 48.1 in December from 48.5 the previous month — the eighth consecutive month that this indicator has contracted.
Beyond the factory floor, China’s services sector enjoyed a tepid recovery following the latest round of coronavirus control measures.
China’s official nonmanufacturing PMI, which includes both services and construction activity, rose to 52.7 in December, compared with 52.3 the previous month, the statistics bureau said separately on Friday.
The subindex measuring services activity rose to 52 this month, up from 51.1 in November, as airlines, restaurants and entertainment venues shook off November’s coronavirus shutdowns. The subindex measuring construction activity declined to 56.3, compared with November’s 59.1, as construction was dampened by unseasonably cold weather.
“The improved PMIs showed market confidence was boosted by recent easing moves and top leaders’ pledge to prioritize stability next year. But it doesn’t mean major economic indicators will soon end their downward course,” said Tang Jianwei, an economist at Bank of Communications.
China began shifting its policy stance this month to boost support for the economy as signs of cooling in the world’s second-largest economy began to emerge in the third quarter of the year.
As the economy was hit by a power crunch that curbed factory production, waves of Covid-19 outbreaks that halted a consumption recovery and a deepening slump in its property market, the People’s Bank of China earlier this month slashed its benchmark interest rate for the first time in nearly two years. That move followed a lowering of commercial banks’ reserve requirement ratio — effectively freeing up a large quantity of funds for lending.
Top leaders pledged this month to prioritize growth stability while mapping out the next year’s economic priorities. That language prompted market anticipation for more aggressive interest-rate cuts and supporting measures in 2022, when leader Xi Jinping is expected to secure a third term in power and reshuffle other top government posts.
But even those moves may not be enough to reverse the current downward trend, said Mr. Tang of Bank of Communications, who warns that the economy still faces formidable headwinds next year. In particular, Mr. Tang is concerned that consumption and investment will continue to be dragged down by the continuing property-sector slump, as well as the likelihood of more Covid-19 shocks and slower government spending.