China’s manufacturing sector is picking up steam

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Activity levels across China’s manufacturing sector rebounded slightly in December, according to data released by IHS Markit earlier today.

Its Manufacturing Purchasing Managers Index (PMI), produced in conjunction with the Caixin Insight Group, rose to 51.5 in December in seasonally adjusted terms, up from 50.8 in November.

It was the highest level since August 2017.

Source: IHS Markit

This indicator measures perceived changes in activity levels across China’s manufacturing 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 activity levels improved at a faster pace than November, albeit only marginally.

According to IHS Markit, the report pointed to faster growth of output, total new work and export sales in December.

“Manufacturing production continued to increase across China at the end of 2017,” the group says.

“Notably, the rate of expansion quickened to a three-month high… [helped by] improved sales and stronger underlying market demand.

“Furthermore, total new orders expanded at the steepest pace since August, with export sales also rising at a faster pace at the end of the year.”

With output, new orders and new export orders all improving, sentiment towards the 12-month business outlook rose slightly from the record-low level struck a month earlier.

“According to panellists, forecasts of relatively subdued client demand and changes to national policies had dampened confidence at the end of 2017,” IHS Markit said.

Zhengsheng Zhong, director of Macroeconomic Analysis at Caixin Insight Group, said that while China’s manufacturing sector exceeded many people’s expectations in 2017, the outlook for 2018 remained uncertain.

“Manufacturing operating conditions improved in December, reinforcing the notion that economic growth has stabilised in 2017 and has even performed better than expected,” he said.

“However, we should not underestimate downward pressure on growth next year due to tightening monetary policy and strengthening oversight on local government financing.”

A separate report on China’s services sector — now the largest part of the economy — will be released later in the week.