February 26, 2024

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Chinese factory activity slowed in December for the third straight month of contraction

Chinese factory activity slowed in December for the third straight month of contraction

A survey of factory managers in China showed manufacturing contracted in December in the latest sign that the world's second-largest economy remains sluggish.

The official Purchasing Managers' Index fell to 49 last month in what officials said was evidence of weak demand, the National Bureau of Statistics reported on Sunday. This was the third straight month of contraction. The Purchasing Managers' Index (PMI) is on a scale of 100, where 50 represents the dividing line between expansion and contraction.

The index has fallen in eight of the past nine months, with an increase only in September. In November, the index reached 49.4, down from 49.5 the previous month.

Despite unexpectedly prolonged weakness after the pandemic, China's economy grew at a pace of 5.2% in the first three quarters of the year and showed signs of improvement in November, with factory output and retail sales rising.

In recent months, the government has increased spending on building ports and other infrastructure, cut interest rates and eased restrictions on home purchases in an attempt to stimulate domestic demand that economists say is essential to sustain growth.

In his New Year's address, leader Xi Jinping said China had made a “smooth transition” from the country's response to the pandemic, which at times included closing factories and parts of entire cities.

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Xi said in statements reported by the Xinhua News Agency that the Chinese economy has become “more flexible and dynamic than before.”

Global demand for manufactured goods has suffered as central banks around the world have raised interest rates to fight decades-high inflation rates. Price pressures have eased in recent months, but demand has not yet recovered to pre-pandemic levels. This has ramifications across the region because supply chains linked to China are spread across many Asian countries.

Relying on exports to fuel growth in China means more competition as the government invests in more industrial construction, Stephen Innes of SPI Asset Management said in a commentary. He pointed out that “the biggest obstacle to the manufacturing sector was not access to capital but rather weak demand, so expanding investment in manufacturing often means expanding spare capacity.”

China's non-manufacturing PMI rose in December to 50.4, the statistics bureau reported. However, the PMI sub-index for the services sector stood at 49.3, unchanged from November's reading.

Despite the slump in the housing market caused by a crackdown on excess borrowing by real estate developers, the construction industry is thriving: the sub-index for the sector rose to 56.9 in December, which is expansionary territory, from 55 in November, the report said. He said.