By Gina Lee
Investing.com – China’s factory activity continued its recovery towards pre-COVID-19 levels, a business survey said. However, rising cost pressures are slowing the pace of expansion in the world’s second largest economy.
The Caixin Manufacturing Purchasing Managers Index (PMI) released earlier in the day, showed a reading of 53 for December. Although the figure stayed above the 50-level indicating expansion, it was lower than the 54.8 in forecasts prepared by Investing.com and November’s 54.9 reading. Growth also eased to softest pace in three months.
Strong exports have buoyed the Chinese industrial sector towards a rapid recovery from the COVID-19 economic impact in 2020. The expected growth of around 2% in the economy for the whole of 2020 is the weakest pace of growth in over 30 years but stronger than other major economies that are seeing surges in the number of COVID-19 cases.
However, the prospect of tougher coronavirus control measures in many key trading partners in the west could dampen industrial demand and hamper the recovery. China is also dealing with its own cluster of COVID-19 cases.
The data follows National Bureau of Statistics’ release of the manufacturing PMI and the non-manufacturing PMI during the previous week. The manufacturing PMI was at 51.9 in December, down from the reading of 52 in forecasts prepared by Investing.com and November’s 52.1 figure. The non-manufacturing PMI was at 55.7, also down from November’s reading of 56.4.
“The negative impact of the pandemic on the domestic economy further subsided and the manufacturing industry continued to recover. Both the supply and demand sides continued to improve. Overseas demand also steadily increased,” Caixin Insight Group senior economist Wang Zhe said in a note accompanying the survey release.
The survey also showed that input prices rose at the fastest pace since 2017, with pricier raw materials, especially metals, blamed for the hike. In terms of employment, Chinese factories also laid off more workers than they hired for the first time in four months. However, the decline was modest.
“We need to pay attention to the mounting pressure on costs brought by the increase in raw material prices and its adverse impact on employment, which is particularly important for the design of the exit from stimulus policies implemented during the epidemic,” the note added.
Wang’s note remained cautiously optimistic, however. Gauges of both total new orders and factory output remained strong, although they were lower than November’s figures, and growth in new export orders also slowed.
“We expect the economic recovery in the post-epidemic era to continue for several months, and macroeconomic indicators will be stronger in the next six months, taking into account the low bases in the first half of 2020,” the note said.