Chinese manufacturing contracts for fifth month

news
04 January 2016

With activity in the manufacturing sector contracting for a fifth straight month in December, analysts expect the Chinese government to step up policy support.

Though the services sector recorded robust growth, there were no signs of the economy stepping up the pace of growth from the lowest in a quarter of a century, even as the government announced a slew of of policy measures including repeated interest rate cuts, in the past year or so.

According to commentators, the world's second-largest economy faced persistent risks this year as leaders had pledged to push so-called "supply-side reform" to cut excess factory capacity and high debt levels.

The official manufacturing Purchasing Managers' Index (PMI) came in at 49.7 in December, in line with expectations of economists polled by Reuters and up only fractionally from November. A reading below 50 indicates contraction in activity, while a higher one indicated an expansion.

However, economists continued to take comfort in the fact that there were no signs of a sharper deterioration as feared by global investors.

The slight uptick in the manufacturing PMI "suggests that (economic) growth momentum is stabilizing somewhat ... however, the sector is still facing strong headwinds," said Zhou Hao, China economist at Commerzbank in Singapore, Reuters reported.

The purchasing managers' index edged up to 49.7 last month from a three-year low of 49.6 in November, the National Bureau of Statistics (NBS) said yesterday. The non-manufacturing PMI, meanwhile, rose to 54.4, the highest since August 2014. Numbers below 50 indicate deterioration.

Policymakers are coming under pressure from employment which had been steady, as they try to meet premier Li Keqiang's goal of about 7 per cent growth this year which has been steady thanks to a resilient services sector.

''Growth momentum is stabilising somewhat, however, as the index remained below 50 for five consecutive months, the manufacturing sector is still facing strong headwinds,'' said Zhou Hao, an economist at Commerzbank in Singapore. ''Monetary policy will remain accommodative and fiscal policy will be more proactive,'' Bloomberg reported.

While the manufacturing PMI showed improvement on both the supply and demand sides, downward pressure remained significant for the sector, according to the statistics bureau.

''The improvement in the index suggests growth momentum has continued to stabilise, in part due to the government's stimulus efforts,'' said Fielding Chen, an economist at Bloomberg Intelligence in Hong Kong.





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