Pressure is mounting on the Chinese government to take stronger action to support the nation’s economy after December’s factory activity contracted to the lowest level in six months.
According to the National Bureau of Statistics, which released a statement on Sunday, the official manufacturing purchasing managers index declined to 49. That failed to meet the median expectation of 49.6 of a group of economists in a Bloomberg survey, and was the same as a reading from June.
A measure of non-manufacturing activity increased from 50.2 in November to 50.4 in December, as the construction sector expanded in response to an acceleration in infrastructure investment in recent months. Services activity continued to remain in contraction, however with the underlying measure remaining 49.3.
Figures above the threshold level of 50 indicate an expansion, while figures below 50 indicate a contraction.
The PMI readings which were released indicate that China’s economic recovery in the final months of the year continues to be weak. Given Chinese leaders vowed to maintain a pro-growth stance in 2024, the numbers will likely add to the pressures on fiscal and monetary policymakers to act forcefully to encourage more growth.
Xing Zhaopeng, a senior strategist at Australia & New Zealand Banking Group said, “The weaker-than-expected PMI data showed growth momentum has declined further amid a low season and the cold weather. We can’t rule out the possibility that the central bank may cut rates in early January.”
In a separate statement, NBS analyst Zhao Qinghe said that the biggest difficulty reported by some companies in the official PMI survey was, “falling overseas orders coupled with insufficient effective domestic demand.” Zhao added that due to subdued demand, the textile and non-mineral product sectors were unable to make use of their full capacity.
Deepening consumer price deflation and shrinking imports have also reflected a broader weakening of demand and sluggish confidence. In addition, further demand for goods ranging from furniture to home appliances is expected to continue to be weakened by the worst property downturn in modern times.
As demand has weakened, a sub-index for new orders at factories dropped to 48.7, while another gauge for new export orders shrank to 45.8.
In non-manufacturing sectors, according to the NBS, a measure of construction activity rose to 56.9 from 55 in November. Due to the government increasing extra bond issuance in an effort to encourage the building of more infrastructure projects, some analysts had forecast that construction momentum would remain robust.
However NBS’s Zhao noted that some services industries lost steam, such as air transport, lodging, and household services, as consumers reduced traveling due to cold weather.
