Activity levels across small and medium sized manufacturing firms in China ended 2015 as they began – contracting.
The latest Caixin-Markit manufacturing PMI fell to 48.2 in December, below the 48.6 level of November and expectations for an increase to 49.0.
The reading, the lowest since September, marked the 10th consecutive month that the index remained below the 50 level that separates expansion from contraction.
Markit reported that production contracted for the seventh time in the past eight months while new orders – a harbinger for future levels of activity – continued to contract on the back of weakening demand, both from within China and abroad.
He Fan, chief economist at Caixin Insight Group, believes the result indicates that the economy is facing a greater risk of weakening further.
The Caixin China General Manufacturing PMI for December is 48.2, down 0.4 points from the reading for November. This shows that the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening. More fluctuations in global markets are expected now that the U.S. Federal Reserve has started raising interest rates. The government needs to pay more attention to external risk factors in the short term and fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff. It needs to simultaneously push forward the supply-side reform to release its potential and reap the benefits.
The weak Caixin-Markit PMI report corresponds with an equally weak NBS manufacturing PMI report released by the government on New Year’s Day.
According to the government, activity levels across the nation’s vast manufacturing sector – the largest in the world – contracted for the fifth month in succession in December, the longest stretch of declines seen since the height of the global financial crisis.
The official gauge rose to 49.7, up from 49.6 in November but still below the 50 level that indicates growth in activity levels.
The NBS survey is more widespread than than the Caixin-Markit report, collating responses from large, medium and small firms from both the private and public sectors.
While the weakness in China’s manufacturing sector is now entrenched, there was more pleasing news to come from the NBS’ separate non-manufacturing PMI report which accelerated to 54.4 in December, the fastest expansion recorded in 18 months.
Should the Caixin-Markit services report for December – scheduled for release on Wednesday – reveal a similar expansion to that recorded in the government’s survey, it will add to evidence that China’s economic rebalancing found further traction in the latter parts of 2015.
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