Caixin China General Manufacturing PMI (December 2021)

Production increases at quickest rate for a year

Key findings

• Stronger rise in output amid renewed upturn in sales

• Input cost inflation eases to 19-month low

• Business confidence weakens amid pandemic and supply chain worries

Data were collected 03-15 December 2021

Operating conditions across China's manufacturing sector improved slightly at the end of the year, according to latest PMI data. Firms signalled the strongest increase in output for a year amid a renewed uptick in total sales. However, foreign demand remained lacklustre, with export orders broadly stagnant. Improved demand prompted a fresh rise in purchasing activity, but backlogs rose again amid a further drop in staffing levels.

Supplier performance meanwhile deteriorated at a softer pace, and inflationary pressures weakened. Notably, average input costs rose at the slowest pace for 19 months.

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – rose from 49.9 in November to 50.9 in December, to signal a renewed improvement in the health of the sector. Though marginal, the rate of improvement was the strongest seen since June.

Helping to lift the PMI reading was a stronger increase in production at the end of 2021. Output rose at the quickest rate for 12 months and solidly overall, supported by improved market conditions and stronger customer demand.

New work rose for the third time in the past four months in December, albeit marginally. Underlying data indicated that subdued foreign demand weighed on overall sales, as export business was little-changed compared to November. A number of firms indicated that the global pandemic and difficulties in shipping items continued to impact external sales.

Greater amounts of overall new business exerted further pressure on capacity, as shown by a slightly quicker rise in backlogs of work. Firms also commented that insufficient staff numbers had led to increased amounts of incomplete business. Employment fell for the fifth month in a row, and at the fastest rate since February. Companies indicated that the non-replacement of voluntary leavers and retirees had contributed to lower workforce numbers.

In line with the trend for total sales, purchasing activity also returned to growth at the end of the year. Though modest, the upturn was the quickest seen since June. Stocks of inputs and finished goods meanwhile rose slightly, as some firms noted efforts to build up their inventory levels amid firmer demand conditions.

Although the time taken for purchased items to be delivered to manufacturers increased again in December, there were signs of supply chains moving closer to stabilising. Average lead times lengthened at the slowest rate for nine months and only modestly overall.

Average input costs rose at the weakest rate for 19 months in December, with the rate of inflation having fallen further from October's recent peak. Panel members indicated that lower prices for some raw materials, such as steel, helped to dampen cost inflation. Prices charged meanwhile fell for the first time since April 2020, albeit marginally.

Although business confidence remained strong overall in December, the degree of optimism slipped to a 20-month low. The ongoing global pandemic, and its uncertain trajectory, as well as strained supply chains were cited as key challenges for the year ahead.

Comment

Commenting on the China General Manufacturing PMI data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:

“The Caixin China General Manufacturing PMI came in at 50.9 in December, up from 49.9 the previous month. The index returned to expansionary territory and reached the highest level since June.

“Supply was strong and demand rebounded. With the easing of supply constraints, output expanded for the second month in a row and at a faster pace. Total new orders increased, the third expansion over the past four months, as the impact of scattered Covid-19 flare-ups was under control. Overseas demand remained sluggish because of the pandemic’s impact in foreign countries and rising logistics costs due to a shortage of containers. The gauge for new export orders stayed in contractionary territory for the fifth consecutive month.

“Employment pressure intensified. Despite better demand and supply, firms were still cautious about hiring. The subindex of employment stayed in negative territory for the fifth consecutive month in December and hit the lowest point since February. Surveyed enterprises were not enthusiastic about filling the vacancies left by staff resignation or retirement.

“Inflationary pressure eased as costs rose at a slower clip. The gauge for input costs remained in expansionary territory but was lower than the previous month. Prices of some raw materials such as steel dropped considerably as government measures to ensure supply and to stabilize prices took effect. Output prices dropped for the first time since April 2020 as enterprises cut prices to promote sales. The decline in factory-gate prices of investment goods was more obvious than that of consumer goods and intermediate goods.

“Inventories increased slightly. With the recovery of the market, manufacturers’ purchases increased significantly compared with the previous month. Inventories of finished goods and raw materials both rose. The survey shows that some manufacturers with brisk sales began to actively replenish inventory.

“Entrepreneurs became less optimistic. Manufacturers remained overall upbeat on the market outlook but the gauge for future output expectations hit the lowest point since April 2020. Surveyed enterprises were worried about the negative impact of the pandemic and its shock to supply chains.

“To sum up, manufacturing demand and supply improved in December with easing inflationary pressure. But the job market was still under pressure and businesses were less optimistic, indicating unstable economic recovery. The repeated Covid-19 flare-ups and sluggish overseas demand were factors of instability. As policymakers said at the Central Economic Work Conference that China’s economic growth is facing triple pressures of “demand contraction, supply shock and weakening expectation,” stabilizing the economy will become the key priority of economic work in 2022.

“We are aware that the employment subindex under the Caixin manufacturing PMI and the official surveyed unemployment data both indicated a weakening momentum of the job market. Policymakers should focus on shoring up employment as well as on targeted support to small and midsize businesses. They should make polices more consistent, stable and predictable."

Contact

Dr. Wang Zhe

Senior Economist

Caixin Insight Group

+86-10-8590-5019

zhewang@caixin.com

Ma Ling

Senior Director

Brand and Communications

Caixin Insight Group

T: +86-10-8590-5204

lingma@caixin.com

Annabel Fiddes

Associate Director

IHS Markit

T: +44 1491 461 010

annabel.fiddes@ihsmarkit.com

Joanna Vickers

Corporate Communications

IHS Markit

T: +44 207 260 2234

joanna.vickers@ihsmarkit.com

About Caixin

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