BEIJING, China”•Chinese factory activity accelerated in December, according to independent data released Tuesday, a positive indicator for the world’s second-largest economy to kick off the new year.
The Caixin Purchasing Managers Index (PMI)”•an indicator of conditions at small manufacturers”•rose to 51.5 in December, up from 50.8 in November and the highest reading since August.
The official PMI indicator of 51.6 for December was released on Sunday by China’s National Bureau of Statistics and showed a slight deceleration from November, although it largely maintained momentum.
A PMI figure above 50 represents growth while anything below points to contraction.
Caixin’s index focuses on economic activity at small and medium sized enterprises, and its continued strength may reflect the resilient global demand for many of these exporting firms.
China’s exports saw solid growth during the final months of last year.
“Manufacturing production continued to increase across China at the end of 2017” Caixin said in a statement with data compiler IHS Markit.
“Manufacturing operating conditions improved in December, reinforcing the notion that economic growth has stabilized in 2017 and has even performed better than expected” Caixin analyst Zhengsheng Zhong wrote.
“We should not underestimate downward pressure on growth next year due to tightening monetary policy and strengthening oversight on local government financing.”
Caixin said firms used existing inventories of finished items to satisfy some new orders and cut slightly their inventories of finished goods.
“The relatively healthy PMI number shows the government can still tolerate the impact of deleveraging,” said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. “The PMI decline reflects the impact of financial deleveraging and property curbs on the economy. Deleveraging has pushed up interest rates and slowed credit growth.”
“Growth momentum still seems to be steady, and thereby monetary policy will continue to stay on put,” said Larry Hu, chief China economist at Macquarie Securities Ltd. in Hong Kong. “We see the risk in 2018 biasing toward the downside, especially from the infrastructure spending side, due to the government’s push on deleveraging.”
“The drop in PMI is probably due to the credit tightening toward the end of the year,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “The trend of economic slowdown may become more and more obvious, but the economy’s quality may be improved.”
