China factory activity contracts more than expected in December
CHINA’S factory activity shrank for the third straight month, signalling persistent pressure on the economy from sluggish domestic and overseas demand.
The official manufacturing purchasing managers index (PMI) declined to 49 in December, from 49.4 in November, the National Bureau of Statistics (NBS) said in a statement on Sunday (Dec 31). Economists had expected a reading of 49.6.
A gauge of non-manufacturing activity – measuring construction and services sectors – rose to 50.4 from 50.2 in November. An underlying measure of services activity was unchanged from November at 49.3. Any reading above the 50 mark indicates an expansion from the previous month, while a figure below that is a sign of shrinkage.
China’s economic recovery showed signs of weakness in the final months of 2023, adding to worries over the growth outlook for 2024 even as Beijing signalled that it will likely set an ambitious target for next year. Authorities recently vowed to adopt a pro-growth stance with fiscal and monetary policy in 2024, even while avoiding any hint of big stimulus.
“The weaker-than-expected PMI data showed growth momentum has declined further amid a low season and the cold weather,” said Xing Zhaopeng, a senior strategist at Australia & New Zealand Banking Group. “We can’t rule out the possibility that the central bank may cut rates in early January.”
NBS analyst Zhao Qinghe said in a separate statement that “falling overseas orders coupled with insufficient effective domestic demand” was the biggest trouble reported by some companies in the official PMI survey. The textile and non-metal mineral product sectors were unable to make use of their full capacity due to subdued demand, Zhao added.
Weak demand and sluggish confidence has also been reflected in deepening consumer price deflation and shrinking imports. The worst property downturn in modern China is expected to persist, which will further curb demand for goods from furniture to home appliances.
The official manufacturing PMI underperformed the results of a private survey by Caixin and S&P Global for several months in 2023. The Caixin PMIs will be released later this week. Some economists said the official survey may paint a more realistic picture of the economy, and the divergence could stem from relatively stronger performance of export-oriented firms.
A gauge of construction activity climbed to 56.9 from 55 in November, according to the NBS. Some analysts had expected construction momentum to remain robust as the government stepped up the effort to build more infrastructure projects with extra bond issuance.
A sub-index for factories’ new orders fell to 48.7 as demand weakened, while a gauge measuring new export orders contracted to 45.8.
Some services industries, such as air transport, lodging, and household services, lost steam as consumers reduced traveling due to cold weather, according to NBS’ Zhao.
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