China factories cooled in December, as other Asian manufacturing powerhouses surged

Andrew Mullen
·4-min read

China’s manufacturing engine cooled slightly in December, even as various survey data suggested industrial growth in other Asian powerhouse economies hit the highest levels for years.

China’s Caixin/Markit manufacturing purchasing managers’ index (PMI) – a gauge of sentiment among smaller, private firms – fell to 53.0 in December from a decade-high 54.9 in November, with anything above 50.0 point suggesting the manufacturing sector expanded.

This was the softest reading in three months and was lower than the median forecast of 54.9 expected by analysts in a survey by Bloomberg. However, it still marked the eighth consecutive month of growth in the sector after it was ravaged by coronavirus lockdowns at the start of the year.

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Monday’s survey followed the official manufacturing PMI released last week, which showed activity among China’s larger, state-owned firms also slowed modestly to 51.9 last month from a three-year high of 52.1 in November.

The fall is more significant than the December moderation of the official manufacturing PMI, partly because [small and medium-sized enterprises] may be suffering more from tighter electricity supply in some provinces in South China and partly due to a very high base

Lu Ting

“The fall is more significant than the December moderation of the official manufacturing PMI, partly because [small and medium-sized enterprises] may be suffering more from tighter electricity supply in some provinces in South China and partly due to a very high base,” said Nomura’s chief China analyst Lu Ting.

And while the risks of new outbreaks of coronavirus may increase over the coming weeks as migrant workers return to their hometowns for the Lunar New Year holiday, Nomura “expects China’s manufacturing PMIs to stay buoyant in coming months”.

Chinese firms surveyed reported a slower increase in production during December, along with a slower, but still marked, increase in overall new orders. Underlying data suggested that this was partly due to weaker growth of new export sales as demand from foreign clients expanded only modestly.

Companies also took a more cautious approach to employment levels amid an accelerated rise in overall input costs, as workforce numbers were broadly unchanged.

Nonetheless, the eight-month growth streak points to the robust recovery in China’s economy, which this time last year was on the cusp of an unprecedented lockdown.

Other parts of the region reported positive economic data on Sunday and Monday, with PMIs suggesting Asia-Pacific may remain an engine for global growth in 2021.

Japan’s PMI rose to 50.0 in December, its highest reading since April 2019, according to a survey conducted by Jibun Bank and IHS Markit, while Taiwan’s official PMI jumped to 59.4, its highest point since 2011.

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South Korea’s PMI remained at a nine-year high of 52.9, its third consecutive month of expansion, even as the country battles its third wave of coronavirus infections. This was after Seoul’s Ministry of Trade, Industry and Energy reported the strongest export growth since August 2018 on Friday, with shipments up 12.6 per cent in December from a year earlier.

“Manufacturing PMIs and Korean trade data suggest that regional industry and exports saw another sharp improvement at the end of the year. While some of this strength may fade in the coming quarters, we still expect export-driven industry to support gross domestic product growth in most of the region’s economies throughout 2021,” said Alex Holmes, emerging market economist at Capital Economist.

China’s overall economy has bounced back strongly from the impact of the pandemic after a record contraction in the first three months of the year.

In December, the negative impact of the pandemic on the domestic economy further subsided and the manufacturing industry continued to recover

Wang Zhe

Gross domestic product grew 4.9 per cent in the third quarter compared with a year earlier, thanks largely to state-led investment in infrastructure, stringent virus controls, and demand for medical exports and lockdown goods in Western economies that are still grappling with the outbreak.

“In December, the negative impact of the pandemic on the domestic economy further subsided and the manufacturing industry continued to recover. Both the supply and demand sides continued to improve. Overseas demand also steadily increased,” said Wang Zhe, senior economist at Caixin Insight Group.

China is expected to be the only Group of 20 nation to show positive economic growth for 2020, with some suggesting its economy could expand by as much as 9 per cent in 2021.

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