Explainer | China’s economic growth ‘will continue to regain vigour’: 4 takeaways from December’s manufacturing, services activity data
- Official manufacturing purchasing managers’ index (PMI) remained in contraction in December, while the Caixin/S&P Global gauge rose again last month
- Official non-manufacturing PMI rose, but the subindex for business activity in the services sector remained in contraction
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1. Headline reading down, but factory activity largely unchanged
The statistics bureau pointed to an “increasingly complicated, tough and uncertain” external environment as a key reason for the continued fall.
Zhao Qinghe, a statistician from the National Bureau of Statistics (NBS), said a reduction in overseas orders, as well as insufficient demand from the domestic market, were the major difficulties for firms last month.
Analysts at Goldman Sachs said that among the major subindices, the new orders subindex decreased the most, followed by the output subindex.
“The NBS commented that the decline in manufacturing PMI was linked to some raw materials industries entering the off-season period,” the analysts said.
China’s manufacturing PMI falls for third month in a row
“We think it makes sense to average across both PMIs to gauge conditions in industry and get a sense of what they mean for the hard data. On this basis, the headline reading edged down and is consistent with factory activity remaining largely unchanged last month,” said analysts at Capital Economics.
They said the average new orders component held steady, consistent with modest but positive growth in domestic demand, but downward pressure on foreign demand had not abated as the export orders component continued to point to declines in exports.
2. Services remain in expansion
China’s official services PMI stood at 50.4 in December, a mild improvement after it had slipped to 50.2 in November, which had been the lowest point since December 2022.
The subindex for business activity in the services sector remained unchanged at 49.3 in December compared with November, while the construction subindex jumped to 56.9 from 55 in November.
Analysts at Capital Economics, pointing to comments made by the statistics bureau, said most of the fall in the headline figure could be attributed to further weakness in the real estate, capital markets services and water transport sectors.
Other modes of transport, communication, and financial services sectors, though, continued to see strong gains, they added.
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Analysts at Goldman Sachs said surveyed companies reported that better underlying market conditions and greater intakes in new business had underpinned the stronger rise in service sector activity, while they also indicated that foreign demand for Chinese services increased at the end of the year.
Price indicators, though, suggested price pressure was mixed in December, they added.
3. Composite average up for second month
China’s official composite PMI, which is composed of both manufacturing and services, fell to 50.3 in December, slightly down from a reading of 50.4 in November, hitting a one-year low.
Meanwhile, the Caixin/S&P’s composite PMI rose to 52.6 last month from November’s 51.6, and to the highest reading since May.
“All told, the average of the official and Caixin composite PMIs rose for a second month, from 50.4 to 51.5. But it is still below pre-pandemic levels, [as] the average in 2019 was 52.5,” said analysts at Capital Economics.
4. ‘Some improvement in economic momentum’
Analysts at Capital Economics said that while the official and Caixin PMIs have moved in opposite directions recently, taken together, they point to “some improvement in economic momentum in December, thanks to gains in services and construction”.
“If previous months are any guide, the surveys may be understating the recovery, [as] the hard data showed a more pronounced rebound in October and November,” they said.
“And with policy tailwinds supportive at the start of 2024, we think growth will continue to regain some vigour over the next quarter or two.
“One sign that conditions aren’t as dire as many headlines suggest is that labour market conditions appear to be stabilising. The composite employment component has held broadly steady in recent months and is consistent with only a modest rise in the unemployment rate.”
