Chinese factory activity declines in December for 3rd consecutive monthly contraction

A survey of factory managers in China showed output contracted in December, the latest sign of a slowdown in the world's second-largest economy.

The official Purchasing Managers' Index, or PMI, fell to 49 last month, which officials said was evidence of weak demand, the Office for National Statistics said on Sunday. This is the third consecutive month of contraction. The PMI is on a scale of 100, where 50 represents the cutoff between expansion and contraction.

The index has fallen in eight of the past nine months, rising only in September. In November, the index stood at 49.4, up from 49.5 in the previous month.

Despite unexpectedly lingering weakness after the pandemic, China's economy grew at a 5.2% pace in the first three quarters of the year and showed signs of improvement in November with rising factory output and retail sales.

In recent months, the government has boosted spending on building ports and other infrastructure, cut interest rates and eased restrictions on home purchases to spur domestic demand, which economists say is needed to sustain growth.

In his New Year's address, President Xi Jinping said China had made a “smooth transition” from the country's response to the pandemic, which has sometimes involved shutting down factories and parts of regions or entire cities.

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China's economy has “become more resilient and dynamic than before,” Xi said in remarks carried by the official Xinhua news agency.

Global demand for manufactured goods has been hit as central banks around the world have raised interest rates to combat decades of high inflation. Price pressures have eased in recent months, but demand has yet to return to pre-pandemic levels. It has regional reach as supply chains linked to China are scattered across several Asian countries.

Reliance on exports to fuel growth in China means more competition as the government invests in more industrial construction, Stephen Innes of SPI Asset Management said in a commentary. “The manufacturing sector's biggest constraint is not access to capital but weak demand, so expanding manufacturing investment means expanding overcapacity,” he noted.

China's non-manufacturing PMI rose to 50.4 in December, the Bureau of Statistics said. The services sector's PMI sub-index was 49.3, however, unchanged from November's level.

Despite a slump in the housing market due to measures to curb excessive borrowing by property developers, the construction industry is thriving: The sub-index for that sector rose to 56.9 in December, in expansion territory, from 55 in November, the report said. said.

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