China’s manufacturing steady in December with exporters lifted by US trade war truce

Finbarr Bermingham

The mood among manufacturers in China was steady in December, amid a truce in the long-running trade war with the United States, data released on Tuesday showed.

However, in other sectors of the economy, including construction and services, the mood soured slightly, National Bureau of Statistics numbers showed.

The official manufacturing purchasing managers’ index (PMI) – a gauge of sentiment among factory owners in the world’s second largest economy – was 50.2 in the last month of the decade, the same reading as in November and above a poll of economists conducted by Bloomberg which had predicted 50.1. This is the joint highest reading since March.

Anything above 50 is a sign of positive activity in the manufacturing economy, while below that mark signifies contraction.

The non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – came in at 53.5 in December, below analysts’ expectations for a reading of 54.2. The figure was also down from November’s 54.2.

The composite PMI, a combined reading of both manufacturing and non-manufacturing, was 53.4, down from 53.7 in November.

The official manufacturing PMI is a gauge of sentiment among larger and state-owned factory operators. In the survey, firms are asked to give a view on business issues such as export orders, purchasing, production and logistics.

Within the manufacturing PMI, the metric of new export orders rebounded from 48.8 in November to 50.3 in December, perhaps an indication that factory owners are anticipating a renewal in trade ties with the US, after the completion of a phase one trade deal.

The official manufacturing purchasing managers’ index (PMI) was 50.2 in the last month of the decade, the joint highest reading since March. Photo: Reuters

This was the only positive reading for new export orders in 2019 – an indication of how bad this year has been for China’s trading companies – and the highest number since May 2018, before the trade war began. Manufacturers also expect cheaper input prices, with that reading rising from 49.0 to 51.8 in December.

However, within the non-manufacturing PMI, construction activity dropped from 59.6 to 56.7. In the services and construction sectors, expectations of new export orders fell from 48.8 to 47.8, suggesting that the anticipation of a trade war payout is not shared across China’s entire economy.

After a phase one trade war deal was announced on December 13, there was a freeze in new tariffs set to be imposed by both sides, with renewed expectation that the agreement would see a massive purchase of American goods by Chinese buyers.

The US side has claimed that China will buy US$200 billion in additional goods, on top of its total 2017 imports over two years, including US$80 billion in agricultural goods.

On Monday, the South China Morning Post reported that a deal will be signed in the coming day, with China’s Vice-Premier Liu He set to travel to Washington to finalise things in the first week of 2020.

Analysts warned that the positive state of PMI may not be sustainable, with the economy predicted to grow at slower than 6 per cent in 2020 for the first time since records began.

“We maintain our 2020 annual growth forecast at 5.7 per cent by taking into account the still strong growth headwinds, especially from the cooling property sector and worsening fiscal situation,” wrote Nomura analysts in a note. “We do not think Beijing will overreact to the two consecutive above-50 manufacturing PMI readings, as we believe it learned the lesson from spring this year, when some headline data pointed to a seeming recovery. We expect Beijing to roll out more easing measures despite limited policy room in coming quarters.”

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