Chinese Manufacturing Contracts in December

BANGKOK (AP) — According to a survey conducted by the National Bureau of Statistics, China's manufacturing sector contracted in December, indicating ongoing sluggishness in the world's second-largest economy.

The official Purchasing Managers Index (PMI) dropped to 49 last month, signaling weak demand. This marks the third consecutive month of contraction. The PMI ranges from 0 to 100, where 50 serves as the threshold between expansion and contraction.

In the past nine months, the index has fallen eight times, with a minor increase only in September. In November, it stood at 49.4, down from 49.5 the previous month.

Despite the prolonged weakness due to the pandemic, China witnessed a 5.2% growth rate in the first three quarters of the year. Furthermore, there were signs of improvement in November as factory output and retail sales began to rise.

To bolster domestic demand and sustain growth, the Chinese government has implemented measures such as increased spending on infrastructure construction, interest rate cuts, and relaxed restrictions on home-buying.

In his New Year speech, President Xi Jinping acknowledged China's successful handling of the pandemic, which required temporary shutdowns of factories and even entire cities. Xi emphasized that China's economy has become more resilient and dynamic than ever before.

Global Demand for Manufactured Goods Faces Challenges

The global demand for manufactured goods has been significantly affected by the actions of central banks worldwide, which have raised interest rates in response to historically high levels of inflation. Although price pressures have somewhat eased in recent months, the demand for these goods has not yet fully recovered from pre-pandemic levels. This situation has significant implications across the region, particularly for Asian countries that have supply chains linked to China.

Intense Competition and Manufacturing Investments in China

China's heavy reliance on exports to drive economic growth has intensified competition within the market. The Chinese government's continuous investment in industrial construction has further amplified this competition, according to Stephen Innes of SPI Asset Management. Innes observes that while the manufacturing sector has not struggled to access capital, its main constraint remains weak demand. Consequently, expanding manufacturing investment primarily results in an expansion of excess capacity.

Mixed Results for China's Non-Manufacturing Sector

In December, China's non-manufacturing Purchasing Managers' Index (PMI) improved, with a reported rise to 50.4 by the statistics bureau. However, the sub-index for the service sector PMI remained stagnant at 49.3, the same as November's reading. This suggests that the service sector has yet to experience significant growth.

Thriving Construction Industry Amidst Housing Market Slump

Despite a housing market downturn caused by stricter lending regulations imposed on property developers, China's construction industry continues to flourish. The sub-index for this sector surged to 56.9 in December, indicating expansionary growth. In comparison, the sub-index stood at 55 in November, highlighting further positive momentum for the construction industry.

These developments underscore the intricate dynamics and challenges facing China's economy. While the manufacturing sector grapples with weak demand and excess capacity, the construction industry remains robust amidst housing market woes. Monitoring these economic indicators will be crucial as China navigates its path to recovery and assesses the necessary measures to stimulate sustainable growth.