China manufacturing sector contracts as economic slowdown worsens
Production and new orders both fall amid trade war and weak commodity prices
China’s privately owned manufacturing sector contracted for the first time in 19 months in December, the latest sign of how weakening domestic demand and US tariffs are pressuring the world’s second-largest economy.
Declining economic growth has already prompted the government to launch a series of stimulus measures since last summer. At its annual economic work conference last month, Chinese leaders promised further tax cuts, infrastructure spending and monetary loosening.
The Caixin manufacturing purchasing managers’ index, which mainly tracks private factories, fell to 49.7 in December from 50.2 in November — the first time since May 2017 that the gauge dipped below the 50-point threshold separating expansion from contraction, according to figures released on Wednesday.
The data were published two days after China’s official manufacturing PMI, which primarily surveys state-owned groups, came in at 49.4 for December, the first sub-50 marker since July 2016.
“Even more eye-catching [than the headline PMI value] was that ‘new orders’ in both PMIs fell from expansion in November to contraction in December. This confirms our view that the economy is weak and that stimulus needs to arrive quickly,” Iris Pang, greater China economist at ING, wrote on Wednesday.
The factory slowdown is rippling through Asia-Pacific markets. Manufacturing PMIs in Taiwan, Malaysia, the Philippines and Vietnam all showed declines in recent days.
Stocks were down across the region, with Hong Kong’s Hang Seng index falling almost 3 per cent and China’s CSI 300 losing 1.4 per cent to close at its weakest level since March 2016.
US futures also predicted losses of 1.2 per cent for the S&P 500.
In China, recent economic data have pointed to strong downward pressures. Profits at industrial companies fell in November for the first time in nearly three years, official data showed last week. Retail sales, a closely watched indicator of consumption, grew at their slowest pace in 15 years in November.
Stimulus measures have focused on boosting infrastructure spending and consumption. Policymakers are now turning their attention to housing, a crucial growth pillar.
Property sales fell 5.1 per cent in November in floor-area terms from a year earlier, the biggest monthly fall since early 2015. Last month’s economic work conference instructed municipal governments to adopt property policies in response to specific market conditions — effectively authorising loosening measures in weaker markets.
Since mid-December, cities including provincial capitals Guangzhou, Lanzhou and Taiyuan have eased restrictions on property purchases originally enacted when their local markets were at risk of overheating. Centaline Group, a developer, forecast that another 30 small cities might soon follow suit.
Average mortgage rates for first-time homebuyers held steady at 5.71 per cent in November, halting a 22-month run of month-on-month rises, according to Rong360.com, a research group.
“We expect a much worse slowdown in the first half, followed by a more serious and aggressive government easing/stimulus centred on deregulating the property market in big cities, and then we might see stabilisation and even a small rebound later this year,” Ting Lu, chief China economist at Nomura in Hong Kong, wrote on Wednesday.