China’s manufacturing activity returned to expansion in November, adding to signs that the Chinese economy is gradually getting back on its feet as stimulus measures are taking effect gradually. The Caixin China General Manufacturing Purchasing Managers’ Index rose to 50.7 in November from 49.5 in October, hitting a three-month high. A PMI reading above 50 signifies expansion, while one below 50 signals contraction. However, the official manufacturing PMI, published by the National Bureau of statistics, still showed contraction.
Wang Zhe, Senior Economist at Caixin Insight Group, linked the improvement in the manufacturing sector to a rebound in both supply and demand, saying the macro-economy has been recovering with household consumption, industrial production and market expectations all improving. The gauge for new orders remained in the expansionary territory for the fourth consecutive month, recording the highest reading since June. Notably, business optimism rebounded in November, with the reading for manufacturers’ expectations for future output hitting a four-month high. However, surveyed companies were still worried about the global economic outlook in the next 12 months, according to Caixin.
Despite the improvement in the latest PMI reading, Wang cautioned that external demand remained sluggish, and employment was still weak. The report showed that the gauge for new export orders contracted for the fifth straight month in November. The reading for employment recorded a contraction for the eighth time in the past nine months, as manufacturers generally remained cautious about hiring. “The domestic and foreign demand is still insufficient, employment pressures remain high and economic recovery has not yet found a solid footing,” Wang said. Looking ahead, Wang said focus should be on expanding consumption, increasing incomes, promoting employment and stabilizing expectations. “Ultimately, policies should aim to lay a solid foundation for long-term economic growth and cultivate long-lasting market confidence.” Considering the slightly better-than-expected third-quarter economic performance and the low comparison base in the previous year, Wang said “the annual growth target of around 5% this year looks attainable”.
The official PMI for China’s manufacturing sector, however, fell to 49.4 in November from 49.5 in October. China’s non-manufacturing PMI came in at 50.2 in November, down from 50.6 a month earlier. Also, the country’s official composite PMI, which includes both manufacturing and non-manufacturing activities, came in at 50.4 in November compared with 50.7 in October, according to the National Bureau of Statistics (NBS). Yang Xin, Analyst with Hongta Securities, said the latest official PMI readings show market supply and demand are still weak, and that there appears to be signs of a slight slowdown in economic growth. More efforts will be needed to boost demand, Yang said. Xiong Yuan, Chief Economist at Guosheng Securities, said, “The level of economic prosperity has fallen in China, and the foundation for continued recovery still needs consolidation.” While the December PMI may still face seasonal downward pressures, most economic indicators will likely record year-on-year growth, and China will exceed its annual growth target of around 5% this year, Xiong said. Looking ahead, Xiong said he expects to see further interest rate cuts and a reduction in the reserve requirement ratio (RRR) this month, adding China will likely implement expansionary policies to boost the economy next year, the China Daily reports.
