Activity in factories and workshops is close to contraction, official index shows, as sector struggles with falling demand and struggling property market

This article is more than 5 years old

This article is more than 5 years old

China’s manufacturing growth dropped in December to its lowest level of 2014, an official survey showed on Thursday, as the sector struggles with weak domestic demand.



After a rough 2014, the world’s second-largest economy looks set to start the new year on a weak note, reinforcing expectations that Beijing will roll out more stimulus to avert a sharper slowdown which may trigger job losses and debt defaults.



A property slump is expected to last well into 2015, companies will continue to struggle to pay off debt and export demand may remain erratic, leaving only the services sector as the lone bright spot in the economy.

China’s official purchasing managers’ index (PMI) released by the National Bureau of Statistics on Thursday came in at 50.1 last month, down from 50.3 recorded in November.

The index, which tracks activity in factories and workshops, is considered a key indicator of the health of China’s economy. A figure above 50 signals expansion, while anything below indicates contraction.

“Growth momentum is still insufficient,” the statistics bureau said in a statement.

British bank HSBC said on Tuesday that its own PMI figure for the month fell to 49.6, down from the breakeven point of 50.0 in November.

“The decline of both official and HSBC PMIs suggests that China’s manufacturing sector, especially those industries related to the property market, is still struggling due to sluggish domestic demand,” Li-Gang Liu and Hao Zhou, economists at ANZ Research, said in a note.

But some data suggest that “real activity indicators should have accelerated in the last month of 2014, supported by proactive fiscal policy”, they added.

The news will increase pressure on countries such as Brazil and Australia which depend on exports of commodities to fuel China’s factories.

The price of iron ore, Australia’s biggest export, has fallen by half in the past 12 months and prices of oil and gas are also falling as global demand remains subdued.

China’s central bank surprised economists in November by cutting benchmark interest rates for the first time in more than two years, in a move interpreted as an attempt to shore up flagging growth.

The People’s Bank of China lowered its one-year rate for deposits by 25 basis points to 2.75% and its one-year lending rate by 40 basis points to 5.6%.

The decision came after a string of disappointing statistics showed the Chinese economy is struggling with not just stalling factory growth, but also other problems including soft exports and the weakening property market.

Authorities had for months used various kinds of limited stimulatory measures such as targeted cuts in bank reserve requirements – aimed at freeing up funds for lending – and a cash injection into the country’s five biggest banks for re-lending.