BANGKOK – A survey of factory managers in China shows production shrank in December. This is the latest sign that the world's second-largest economy remains stagnant.
The official Purchasing Managers' Index (PMI) fell to 49 last month, which officials said was evidence of weak demand, the National Bureau of Statistics reported on Sunday. It was the third month of contraction in a row. The PMI is on a scale up to 100, with 50 marking the boundary between expansion and contraction.
The index has fallen in eight of the last nine months, with an increase as recently as September. In November the index was 49.4, after 49.5 in the previous month.
Despite unexpectedly sustained weakness following the pandemic, China's economy grew 5.2% in the first three quarters of the year and showed signs of improvement in November, with factory output and retail sales rising.
In recent months, the government has increased spending on building ports and other infrastructure, cut interest rates and eased restrictions on home purchases to boost domestic demand, which economists say is needed for sustained growth.
In his New Year's address, President Xi Jinping said China had achieved a “smooth transition” of the country's response to the pandemic, which at times included closing factories and parts or entire cities.
China's economy has become “more resilient and dynamic than ever before,” Xi said in a statement carried by the official Xinhua news agency.
Global demand for manufactured goods has suffered as central banks around the world have raised interest rates to combat decades-high inflation rates. Price pressures have eased in recent months, but demand has not yet returned to pre-pandemic levels. This has implications for the entire region, as supply chains linked to China are scattered across many Asian countries.
Reliance on exports to fuel growth in China means more competition as the government invests even more in industrial construction, Stephen Innes of SPI Asset Management said in a commentary. He found that “the biggest obstacle to manufacturing has not been access to capital, but rather weak demand, so expansion of manufacturing investment tends to be accompanied by expansion of excess capacity.”
China's non-manufacturing PMI rose to 50.4 in December, the statistics bureau reported. However, the services PMI sub-index came in at 49.3, unchanged from November's reading.
Despite a slump in the property market caused by a crackdown on excessive borrowing by property developers, the construction industry is thriving: the sub-index for the sector rose to 56.9 in December, well into expansion territory, from 55 in November, it said said in the report.