China PMIs (Dec.) - Capital Economics
China Economics

China PMIs (Dec.)

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The latest manufacturing surveys suggest that factory activity remained strong in December but that the pace of expansion has started to ease. The official non-manufacturing PMI suggests that growth elsewhere also softened, with weaker services activity offsetting a slight pick-up in the construction sector.

Industrial rebound peaking

  • The latest manufacturing surveys suggest that factory activity remained strong in December but that the pace of expansion has started to ease. The official non-manufacturing PMI suggests that growth elsewhere also softened, with weaker services activity offsetting a slight pick-up in the construction sector.
  • The Caixin manufacturing PMI fell from a decade-high 54.9 in November to 53.0 in December (the Bloomberg consensus was 54.7 and our forecast was 55.3). The official survey released last Thursday also fell a touch from 52.1 to 51.9 (Bloomberg 52.0, CE 52.3). The average of the two fell by the most since February, though both indices are still strong by past standards. (See Chart 1.)
  • Averaged across both PMIs, all components apart from the delivery times measure weakened slightly. (See Chart 2.) Although the lengthening of delivery times is usually indicative of stronger demand, it may also reflect supply chain disruptions due to distortions caused by the pandemic. Export orders dropped back slightly, which suggests that the recent strength of exports may be levelling off. (See Chart 3.)
  • The official non-manufacturing PMI released last Thursday fell from an 8-year high of 56.4 to 55.7 (both Bloomberg and CE 56.0). This was driven by a decline in the services index from 55.7 to 54.8. Meanwhile, the construction index edged up from 60.5 to 60.7, presumably on the back of continued strength in infrastructure spending. (See Chart 4.)
  • All told, the official composite PMI declined from 55.7 to 55.1 and suggests that, with the economy already back on track, month-on-month gains in output are starting to slow. Looking ahead, we think momentum will continue to ease in the coming months as fiscal support is partially withdrawn and exports drop back as vaccine rollouts reverse recent shifts in global consumption patterns that have boosted foreign demand for Chinese goods. But output is likely to remain above-trend for a while and flattering base effects from the weakness in Q1 last year will ensure that year-on-year growth rates rise further in the near-term.

Chart 1: Headline Manufacturing PMIs

Chart 2: Manu. PMIs – Contr. to Change
(Official and Caixin simple ave.)

Sources: CEIC, Markit, Capital Economics

Chart 3: Exports & Export Orders

Chart 4: Official Non-manufacturing PMI

Sources: CEIC, Markit, Capital Economics


Julian Evans-Pritchard, Senior China Economist, julian.evans-pritchard@capitaleconomics.com
Sheana Yue, Assistant Economist, sheana.yue@capitaleconomics.com