China manufacturers continue to rebound from pandemic 

Analysts believe momentum will continue to ease in coming months as fiscal support is partially withdrawn and exports drop back as major markets roll out their vaccines 

China manufacturers continue to rebound from pandemic 
Employees wearing masks work on a production line at a factory in Wuhan, Hubei province. File photo by Reuters.

(ATF) China’s manufacturing sector continued to rebound from the coronavirus pandemic, with further improvement in December, although the pace of expansion slowed from the previous month.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) dipped to 53 from November's figure of 54.9.

The PMI covers purchasing, production and logistics and is one of the leading economic indices. A PMI reading above 50 reflects that the manufacturing economy is expanding. A reading below 50 indicates it is contracting.

In December, Chinese companies surveyed reported a slower increase in new orders, as demand from overseas clients “expanded only modestly”. Input costs rose at the fastest rate in three years amid higher prices for raw materials, particularly metals.

“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,” said Wang Zhe, senior economist at Caixin Insight Group.

Gains set to ease

Strict virus control measures in China allowed the country to restart its economy months after the virus was discovered. But with the economy already back on track, month-on-month gains in output are likely to slow, according to Julian Evans-Pritchard of Capital Economics.

"We think momentum will continue to ease in the coming months as fiscal support is partially withdrawn and exports drop back as vaccine rollouts reverse recent shifts in global consumption patterns that have boosted foreign demand for Chinese goods," he added.

The Caixin data follow the release of official PMI, which moderated to 51.9 in December from 52.1 in November, broadly in line with market expectations.

However, the tougher coronavirus control measures in many of its key trading partners in the west and recent domestic infections could dent industrial demand, weighing on the recovery. 

The official PMI, which largely focuses on big and state-owned firms, showed the sub-index for new export orders stood at 51.3 in December, easing from 51.5 a month earlier.

New export orders remained solid, said Ting Lu, China economist at Nomura. "This suggests still-strong demand for Chinese products from overseas economies as they remain mired in the pandemic," she said.

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