China factory momentum remains intact amid smog and debt curbs

A lower reading but still slightly above the 50-mark points to a factory sector still expanding but at a slightly slower pace

A Chinese flag flutters against blue sky in Tiananmen Square in Beijing, China December 24, 2017. Picture taken December 24, 2017. REUTERS/Stringer  ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.

China’s official factory gauge maintained momentum, signaling campaigns to reduce both pollution and debt risk haven’t curbed output.

The manufacturing purchasing managers index slightly edged lower to 51.6 in December, in line with the forecast in Bloomberg’s survey of economists, from 51.8 the prior month. The non manufacturing PMI stood at 55, compared with a projected 54.7 reading and 54.8 in November, according to the data released by the National Bureau of Statistics on Sunday. Numbers above 50 indicate improving conditions while those below signal deterioration.

Steadiness in manufacturing comes even amid intensifying efforts to curb smog and a push to reduce excessive borrowing. Top leaders have been signaling less emphasis on pursuing expansion at all costs and this month, at their main economic planning conclave for 2018, they pledged to focus on “critical battles” against financial risk, pollution and poverty.

“The relatively healthy PMI number shows the government can still tolerate the impact of deleveraging,” said Ding Shuang, chief China economist at Standard Chartered in Hong Kong. “The PMI decline reflects the impact of financial deleveraging and property curbs on the economy. Deleveraging has pushed up interest rates and slowed credit growth.”

The trend of economic stability will be extended, the NBS said in a statement, adding that market demand recovered and industrial restructuring accelerated, leading to shortage of energy and raw materials.

Larry Hu, the Homg Kong-based chief China economist at Macquarie Securities said the growth momentum still seems to be steady, and thereby monetary policy will continue to stay on put. “We see the risk in 2018 biasing toward the downside, especially from the infrastructure spending side, due to the government’s push on deleveraging,” he said.


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The PMI surveys show companies are confident about economic development, the China Federation of Logistics and Purchasing said in a statement Sunday. The agency, which jointly releases PMI with the NBS, said it projects 2018 economic growth of about 6.5 per cent.

“A lower reading but still slightly above the 50-mark points to factory sector still expanding but at a slightly slower pace,” Tom Orlik, a Bloomberg economist in Beijing, wrote in a report. “Growth remains remarkably robust, underpinned by resurgent global demand, stimulus-boosted infrastructure spending, and a deleveraging program that remains more honored in the breach than the observance.”

New manufacturing export orders climbed to a six-month high of 51.9 from 50.8, while input prices increased to 62.2 from 59.8, according to the data. The order backlogs slipped to 46.3 from 46.6 and the non-manufacturing gauge of construction activity climbed to 63.9 from 61.4.

Increases in PMI gauges for input and output prices suggest China’s industrial reflation story will stay strong into 2018, and initial PMI readings for China’s major export markets point to continued strong demand, Mr Orlik said.