Beijing – China’s manufacturing sector contracted for the third straight month in December, an official survey revealed on Sunday, underscoring the economic headwinds facing the country.
The Purchasing Managers’ Index (PMI), a key barometer of manufacturing activity, fell to 49.0 in December from 49.4 in November according to data from the National Bureau of Statistics. This reading was below the 50-point mark separating expansion from contraction and weaker than economists’ median forecast of 49.5 in a Reuters poll.
The persistent manufacturing weakness highlights the challenges for policymakers in engineering a sustained recovery for the world’s second-largest economy. China’s central bank recently said it would step up policy adjustments to revive growth and combat mounting deflationary risks.
Earlier this month, top leaders pledged additional steps in 2024 to support the economy after a high-level meeting to set policy priorities. Several major state-owned banks have also cut interest rates on some deposits, marking the third round of cuts this year in a move that could pave the way for easier monetary policy.
Authorities have rolled out a raft of policies to shore up the economy, which has been battered by repeated COVID-19 outbreaks, a property market downturn, high local government debt and anemic external demand. But the recovery has proven fragile amid these drags.
Adding to deflation concerns, China’s consumer prices fell at the fastest pace in over three years in November, while factory gate deflation deepened. The new export orders index has now contracted for nine consecutive months, underscoring still-weak external demand.
The sub-index tracking new orders, a gauge of domestic demand, fell for the third straight month to 48.7 in December. The input price sub-index dropped to 47.7, down for the third month in a row and pointing to intensifying deflationary pressures and slimmer profit margins for businesses.
On a brighter note, the official non-manufacturing PMI, which covers services and construction, ticked up to 50.4 in December from 50.2 in November, propped up by the vast services industry.
Still, economists expect China will struggle to hit its around 5% GDP growth target for 2022. Policy support is seen continuing into 2023, but the recovery next year may lose further momentum.
Beijing’s stringent zero-COVID policies have taken an economic toll, disrupting production, consumption and supply chains this year. While those curbs have been eased recently, surging infections following the abrupt reopening have sparked concerns about further disruptions.
Smaller firms have been especially hard hit by the COVID drags and property slump. Targeted support for private companies will be essential to sustaining the recovery at a time of external risks.
With headwinds still strong, authorities will have to strike a delicate balance between providing economic stimulus and avoiding policy excesses. Stability will remain the watchword next year as President Xi Jinping begins his third term in power.
