China Dec factory activity edges up ahead of economic headwinds


A worker welds auto parts in an auto accessory manufacturing workshop in Huaibei, Anhui Province, China, June 28, 2019. REUTERS / Stringer

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BEIJING, Dec 31 (Reuters) - China's factory activity accelerated unexpectedly in December, but only marginally, an official poll on Friday showed.

The official purchasing managers' index (PMI) for manufacturing rose to 50.3 from 50.1 in November, data from the National Bureau of Statistics (NBS) showed.

Analysts had expected it to drop slightly to around 50, which separates growth from contraction.

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The world's second largest economy has lost momentum since early summer after recovering from last year's pandemic slump, weighed down by a manufacturing slowdown, debt problems in the real estate market, carbon emissions-related containments and small COVID-19 outbreaks.

China will face "unprecedented" difficulties in stabilizing trade next year, Deputy Trade Minister Ren Hongbin warned on Thursday, as manufacturing capacities in other exporting countries recover from COVID-induced shocks and compete with Chinese exports.

"Looking ahead to January, we expect the manufacturing PMI to drop to 50.0, weighed down by the stricter anti-pollution measures to ensure blue skies for the upcoming Winter Olympics, which will start in early February, and declining demand as a result of the housing crisis and slower export growth, "Nomura economists wrote in a press release.

Data from the statistical office showed that a sub-index for incoming orders improved slightly in December, but continued to shrink to 49.7 compared to 49.4 in November.

Incoming orders for exports continued to decline and the sub-index was at 48.1 compared to 48.5 in the previous month, which indicates weak foreign demand.

A sub-index for production remained positive at 51.4, but was below the 52.0 in November.

"Compared to previous cycles, we believe the pain threshold is higher as Beijing has placed more emphasis on long-term goals than short-term growth stability," Nomura said.

"Still, there is a limit to how much they will slow growth, and that limit could be seriously tested in the spring of 2022."

COVID DISORDERS

A small COVID-19 outbreak occurred in the affluent Zhejiang Province on China's east coast in December, which has since subsided, but some companies have had to stop production.

In the northwest, the Xian Industrial and Technology Center has been closed as a local outbreak continues to spread in the city of 13 million people. Continue reading

Samsung Electronics (005930.KS) and Micron Technology (MU.O), two of the world's largest memory chip manufacturers, have warned that the city's ongoing lockdown could affect their chip manufacturing facilities in the region. Continue reading

Activity across China's service sector grew slightly faster in December, increasing to 52.7 from 52.3 in November.

China's official composite PMI, which includes both manufacturing and services activity, was unchanged at 52.2 in December from November.

Analysts expect gross domestic product (GDP) to slow further in the fourth quarter after the economy grew 4.9% from July to September.

Debt crises at major real estate developers amid tough crackdown on the real estate sector have harmed an industry critical to China's economic growth.

The central bank lowered the minimum reserve ratio (RRR) - the amount of cash banks must hold in reserve - in mid-December to support slowing economic growth. Continue reading

The bank has announced that it will keep monetary policy flexible over the next year in order to stabilize growth and lower financing costs for companies in the face of growing economic headwinds.

Bruce Pang, head of macro and strategy research at China Renaissance Securities, said he expected more support measures to be put in place.

"We believe 2022 should bring more targeted easing to bring about a soft landing and support SMEs, high-tech and innovation companies, advanced manufacturing and green industries," Pang said.

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Reporting by Ryan Woo and Gabriel Crossley; Arrangement by Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.


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