Factory activity cools for fifth month running as overseas demand for Chinese goods continues to fall

This article is more than 4 years old

This article is more than 4 years old

A further slowdown in China’s vast manufacturing sector has intensified worries about the year ahead for the world’s second largest economy.

The latest in a string of downbeat reports from showed that activity at China’s factor ies cooled in December for the fifth month running, as overseas demand for Chinese goods continued to fall.

Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly. The country’s central bank expects growth in 2015 to be the slowest for a quarter of a century.

After growing 7.3% in 2014, the economy is thought to have expanded by 6.9% in 2015 and the central bank has forecast that it may slow further in 2016 to 6.8%.

A series of interventions by policymakers, including interest rate cuts, have done little to revive growth and in some cases served only to heighten concern about China’s challenges.

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Friday’s figures showed that the manufacturing sector limped to the end of 2015. The official purchasing managers’ index (PMI) of manufacturing activity edged up to 49.7 in December from 49.6 in November.



The December reading matched the forecast in a Reuters poll of economists and marked the fifth consecutive month that the index was below 50, the point that separates expansion from contraction.

“Although the PMI slightly rebounded this month, it still lies below the critical point and is lower than historic levels over the same period,” Zhao Qinghe, a senior statistician at the national bureau of statistics, said in a online statement.



Analysts said the latest manufacturing PMI pointed to falling activity, but that some hope could be taken from the improvement on November’s three-year low.

The small rise “suggests that growth momentum is stabilising somewhat … however, the sector is still facing strong headwinds,” said Zhou Hao, the China economist at Commerzbank in Singapore.

“In order to facilitate the destocking and deleveraging process, monetary policy will remain accommodative and the fiscal policy will be more proactive.”

The report showed that total new orders at Chinese manufacturers, a measure that combines domestic and export orders, edged up in December from 49.8 to 50.2. Export orders, however, fell for the 15th month running.

A separate survey of the smaller services sector showed that activity gained pace in December. The official non-manufacturing PMI rose to 54.4 from November’s 53.6, according to the statistics bureau.

There was also upbeat news from the housing market, with signs that prices were boosted in December by six interest rate cuts in the year up to November, and by government moves to ease restrictions on homebuying.

Prices for new homes rose 4.15% on an annual basis in China’s 100 biggest cities last month, according to the China Index Academy.



Despite the more positive news from the services sector and housing market, economists have focused on the manufacturing sector. They worry that a weak series of PMI survey readings, from the national statistics offices and polls carried out by the private sector, point to GDP growth that is slower than official estimates suggest.

Economists expect more stimulus measures in 2016 as Beijing seeks to boost demand in the economy and shore up confidence among Chinese and foreign investors. Leaders have pledged to expand the country’s budget deficit this year, to help boost growth with more government spending.

After mixed results in 2015, however, any further moves by Beijing to revive the pace of growth in 2016 face a series of hurdles. After a global rout in 2015, many analysts expect prices for commodities such as oil and metals to remain volatile this year, increasing uncertainty for China as a big producer and consumer of raw materials.

China is also grappling with a slowdown in neighbouring emerging economies that are important trading partners. Those countries in turn are under pressure after the recent move by the US Federal Reserve to raise interest rates for the first time in almost a decade caused knock-on effects in currency, bond and stock markets.