China factory activity accelerated in December: Caixin

Beijing

CHINESE factory activity accelerated in December, according to independent data released on Tuesday, a positive indicator for the world's second-largest economy to kick off the new year.

The Caixin Purchasing Managers Index (PMI) - an indicator of conditions at small manufacturers - rose to 51.5 in December, up from 50.8 in November and the highest reading since August.

A PMI figure above 50 represents growth while anything below points to contraction.

Caixin's index focuses on economic activity at small and medium sized enterprises, and its continued strength may reflect the resilient global demand for many of these exporting firms.

China's exports saw solid growth during the final months of last year. "Manufacturing production continued to increase across China at the end of 2017," Caixin said in a statement with data compiler IHS Markit.

"Manufacturing operating conditions improved in December, reinforcing the notion that economic growth has stabilised in 2017 and has even performed better than expected" Caixin analyst Zhengsheng Zhong wrote. "We should not underestimate downward pressure on growth next year due to tightening monetary policy and strengthening oversight on local government financing."

Caixin said firms used existing inventories of finished items to satisfy some new orders and cut slightly their inventories of finished goods.

Tuesday's survey, which pushed Asian shares to their highest in a decade, was somewhat at odds with a much-larger official China PMI survey on Sunday. The official PMI indicator of 51.6 for December showed a slowdown in growth amid a crackdown on pollution and measures to curb risky financing and cool the housing market. But the overall reading still appeared relatively solid, and marked the 18th straight month that the sector has expanded.

The figures showed that China's full-year 2017 economic growth would be at about 6.9 per cent and around 6.5 per cent for 2018, according to the China Federation of Logistics and Purchasing, which compiles the official data. "Overall, 2017's economic performance continues to be steady and good, establishing a generally good foundation for 2018," the federation said. "Recent PMI surveys show companies are confident for economic development in the new year, with production and operating activity expectation indices showing significant improvement."

Bank of America Merrill Lynch economists said: "We believe a moderate growth slowdown to be more visible in the first half of 2018, especially on the investment front, due mainly to the tight financial conditions and a cooldown of the property market."

Slowly rising borrowing costs due to a government crackdown on riskier lending practices are also expected to drag more prominently on economic activity in 2018. The central bank nudged up interbank rates earlier in December for the fourth time last year, though policymakers are keen not to tap the brakes too sharply and risk a sharper economic slowdown. AFP, REUTERS

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