Caixin
Jan 03, 2017 10:54 AM
ECONOMY

China December Manufacturing Strongest in Almost Four Years: Caixin PMI

(Beijing) — China’s manufacturing activity grew in December at its strongest pace in nearly four years, bolstered by rising demand and robust production expansion, an industry survey sponsored by Caixin showed Tuesday.

The Caixin China General Manufacturing Purchasing Managers’ Index (PMI) came in at 51.9 last month, rising from 50.9 in November and the best performance since January 2013.

The index is based on data provided by more than 500 factories and mines across the country and is closely watched by investors as one of the first available indicators every month that reflects the strength of the Chinese economy.

A reading above 50 indicates expansion, while anything below that points to contraction.

The December figure marks the sixth consecutive month that manufacturing activity has expanded.

“The Chinese manufacturing economy continued to improve in December, with the majority of sub-indexes looking optimistic,” said Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group, a subsidiary of Caixin Insight Group.

Output growth picked up to a 71-month high on the back of stronger domestic demand, underlined by an increase in the number of new customers and the fastest increase in new orders since July 2014, the survey showed.

Firms accelerated their input buying — raw materials or components for finished products — which gained for the first time since September, it showed.

Inflationary pressures remained sharp in December, with average input prices soaring at their fastest speeds since March 2011. Output charges also rose sharply, although at a slightly slower pace than in November, when the rate was a 69-month high, it said.

Despite the improving figures, Zhong cautioned that the economic recovery was yet to be firm.

“It is still to be seen if the stabilization of the economy is consolidated due to uncertainties in whether restocking and consumer price rises can be sustainable,” he said.

Chinese manufacturers shed jobs in December for the 38th month in a row, as companies continued to tighten their belts to save costs, according to the survey.

The official PMI for December, published by the National Bureau of Statistics (NBS) on Sunday, was 51.4, down from 51.7 in November but marking the second-highest reading in 2016.

The Caixin PMI focuses more on light industry, while heavy industry takes a larger share in the NBS survey. The geographic distributions of companies covered in the government survey and the Caixin poll are also different.

NBS analyst Zhao Qinghe said high-tech manufacturing expanded faster in December than the average pace of the overall manufacturing sector, while the food, beverage, tobacco, automobile, and pharmaceutical industries “grew rapidly” with the approach of New Year’s Day and the Spring Festival, the latter falling on Jan. 28 this year.

But companies’ profitability was squeezed due to rising raw material prices and logistics costs, and small businesses continued to complain about financing difficulties, Zhao said in a statement.

Although inflation has gained momentum in recent months, analysts believe it is mainly led by declining raw material supplies as the government strives to cut overcapacity, particularly in the coal and steel sectors, and a weakened yuan that has inflated import prices, rather than a turnaround in overall demand.

The consumer price index rose 2.3% in November year-on-year, the third straight month of accelerated growth, while the producer price index jumped 3.3% in the month, the highest since October 2011, latest official data showed.

The NBS on Sunday also released its non-manufacturing business activity index, which edged down to 54.5 last month from 54.7 in November, affected by reduced work in sectors including property and capital market services.

The monthly Caixin PMI for the service sector and overall business activity for December will be released on Thursday.

Contact reporter Fran Wang (fangwang@caixin.com)

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