China’s recovery may have peaked
Manufacturing PMI drop is biggest month-on-month decline since May
China’s economic recovery could be past its peak and beginning to stabilise as the year draws to a close, with a key manufacturing gauge moderating in December after an export-fuelled boost to production.
The official manufacturing purchasing managers’ index (PMI) fell to 51.9 from a three-year high of 52.1 in November, the National Bureau of Statistics said on Thursday, lower than the median estimate of 52 in a Bloomberg survey of economists. The non-manufacturing gauge, reflecting activity in the construction and services sectors, dropped to 55.7 from 56.4.
While the figures are still above the 50-mark, indicating improving conditions from the previous month, the drop in the manufacturing index was the biggest month-on-month decline since May. That suggests a moderation in the pace of industrial growth, which has so far been benefiting from the resumption of everyday life in China and overseas demand for pandemic-related goods.
“It’s a gradual plateauing,” said Bo Zhuang, chief China economist at TS Lombard. “We have passed the peak of the strong recovery, as suggested by exports and industrial shortages. I think the PMI from here might be peaking as the credit growth is peaking out.”
The subindex for new export orders moderated slightly to 51.3 in December from 51.5, suggesting normalisation in demand after a seasonal surge for the Christmas holidays.
“It is still a level that is consistent with very solid growth,” Qian Wang, Asia-Pacific chief economist at Vanguard Group, said in an interview on Bloomberg TV. “The Chinese economy seems to be holding up pretty well in spite of the second wave on the external side.”
With the coronavirus pandemic largely under control, economists forecast China is on track to be the only major economy to grow in 2020 with an expansion of about 2%. Beijing has signalled a gradual withdrawal of the fiscal and credit stimulus it provided this year, while vowing there would be no “sharp turns” in policy support.
The non-manufacturing PMI fell to its lowest level since August, as unusually cold weather halted some construction projects and sporadic small-scale virus outbreaks reduced the willingness of consumers to spend on services such as catering.
“The cold snap and local Covid-19 flares impacted economic activities,” said Xing Zhaopeng, an economist at Australia & New Zealand Banking Group in Shanghai. “The biggest drag is from small businesses.” That could be proof of the need for authorities to maintain policy support, he said.
A set of early indicators showed China’s economic recovery continuing in December, underpinned by strong demand for exports, rising commodity prices and a rallying stock market.
Zhao Qinghe, an economist with the statistics bureau, said the manufacturing industry maintained “a good momentum of steady recovery”.
Sub-indices measuring employment in the manufacturing and non-manufacturing sectors continued to show sub-50 readings that have persisted for at least six months. The fragile labour market has weighed on consumption.
“Employment is still relatively weak and wage growth is still at a low growth rate,” said Zhuang of TS Lombard. “It’s a challenge for retail sales and consumption.”
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