China’s manufacturing sector stalls

  • Activity levels across China’s manufacturing sector stopped improving in November, the first time that’s occurred in well over two years.
  • Momentum in China’s non-manufacturing sectors also slowed, painting a bleak picture on the broader health of the economy.
  • Chinese President Xi Jinping and US President Donald Trump will meet to discuss trade on Saturday.

China’s manufacturing sector stalled in November, painting a bleak picture of the health of the world’s second-largest economy in late 2018.

The government’s Manufacturing Purchasing Managers Index (PMI), released by China’s National Bureau of Statistics (NBS), fell to 50.0 in November after seasonal adjustments, down from 50.2 in October.

It was the weakest reading since July 2016.


PMIs measure perceived changes in activity levels across a sector from one month to the next.

Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

So at 50, the NBS measure suggests activity across the sector stalled in November.

The NBS said the decline in the headline PMI was driven by a slower improvement at large manufacturers and steeper decline at small firms. Activity at mid-sized firms also deteriorated, albeit at a slower pace than October.

By activity measure, growth in production, purchase quantities and new orders moderated, while firms once again shed staff, continuing the pattern seen for well over a year.

Hinting that the trade war with the United States is continuing to drag on activity levels, new export orders declined for a six consecutive month.

Order backlogs also declined, as has been the case now for well over a year.

Reflecting a combination of sharp declines in commodity prices and weak demand, prices for raw materials grew at the slowest pace in over a year. Prices for finished goods also fell heavily during the month, suggesting manufacturers had to cut prices to entice demand.

Adding to concerns over the broader economy, the NBS non-manufacturing PMI also weakened, falling to 53.4 after seasonal adjustments, the slowest improvement since August last year.

China’s non-manufacturing sectors now account for the vast bulk of total economic output, meaning this index could easily be deemed to be more important that the manufacturing reading.


The NBS said new orders, input prices and supplier delivery times also rose at a slower pace than October. Selling prices also fell for the first time in eight months, while firms shed staff for a third consecutive month.

Inventory levels and order backlogs also fell at a faster pace than a month earlier.

Interestingly, one of the few areas to improve was offshore demand with new export orders growing for the first time since January this year, although the increase was only marginal.

While that was a rare bright spot, the broader theme from both PMIs suggests the Chinese economy is continuing to lose momentum, reflecting previous deleveraging attempts from government officials earlier in the year and the ongoing impact of trade tensions with the United States.

Given the data today, it means that talks between Donald Trump and Xi Jinping on trade this weekend has taken on even more significance, potentially emboldening Trump to retain his current stance given the negative impact tariffs are having on the Chinese economy.

Beyond that meeting on Saturday, attention will now turn to the release of separate China manufacturing and services PMI data from IHS Markit in the coming days.

Given PMIs measure sentiment as to what’s happening, not actual activity on the ground, there’ll also be interest as to whether the slowdown seen in today’s reports is replicated in hard data on industrial output and investment released in mid-December.

Some have speculated that the recent weakening in PMIs reflects pessimism over the potential for the trade war between China and US to escalate, rather than a softening in actual economic activity.