Manufacturing Sector Contracts for Eight Consecutive Months
December Manufacturing PMI Rebounds to Expansion
Defying Expectations... Long-term Chinese Bond Prices Fall
After eight consecutive months of sluggish performance since this spring, China's manufacturing sector returned to expansion this month. Contrary to market expectations, solid manufacturing growth has been confirmed, offering some relief to the Chinese government.
On December 31, the National Bureau of Statistics of China announced that the Manufacturing Purchasing Managers' Index (PMI) for December rose by 0.9 points from the previous month (49.2) to 50.1. This figure exceeds the median economist forecast of 49.2 compiled by Reuters.
The PMI reflects economic trends in the relevant sector; a reading above 50 indicates expansion, while a reading below 50 signals contraction. Previously, China's manufacturing PMI remained below the benchmark of 50 for eight consecutive months from April through November.
The Non-Manufacturing PMI, which covers the construction and service sectors, also entered expansion territory in December, rising by 0.7 points to 50.2 from 49.5 in the previous month. The business activity index for the construction sector increased by 3.2 points to 52.8, while the business activity index for the service sector edged up by 0.2 points to 49.7.
As a result, the Composite PMI, which combines manufacturing and non-manufacturing sectors, rose by 1.0 point from 49.7 in November to 50.7 in December.
Additionally, a separate private (Luitinggou) survey released the same day showed the December manufacturing PMI at 50.1, up 0.2 points from the previous month (49.9). The Luitinggou index, formerly known as the Caixin PMI, is considered to better reflect the business conditions of private, export-oriented companies and small to medium-sized enterprises compared to the official PMI.
Bloomberg News reported that the preference for safe-haven assets weakened as economic indicators turned out better than expected. Prices of 30-year Chinese government bond futures fell by 0.7%, and government bond yields rose in the spot market.
Reuters noted, "As Chinese authorities accelerate efforts to achieve this year's economic growth target (around 5%), this serves as a signal that provides some degree of confidence."
Bloomberg also interpreted, "Both indicators (PMI and Luitinggou index) contradict market expectations of continued manufacturing weakness," adding, "It suggests that China's manufacturing sector, which has struggled this year due to weak domestic demand and worsening trade conditions, is now entering a period of stabilization."
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