China's factories end year on a high

Chinese workers loading steel pipes at a port in Lianyungang, east China's Jiangsu province, on Jan 1, 2017.
Chinese workers loading steel pipes at a port in Lianyungang, east China's Jiangsu province, on Jan 1, 2017.PHOTO: AFP

Similarly robust gains for services a sign growth is strong enough to push for reform

BEIJING • China's factories and services both closed out last year on relatively robust notes, signalling that growth is strong enough for policymakers to keep pushing for economic reforms this year.

The manufacturing purchasing managers index (PMI) stabilised to a post-2012 high last month, down to 51.4 from 51.7 the previous month. The non-manufacturing PMI slipped to 54.5 from a two-year high of 54.7 last November. Numbers above 50 indicate improving conditions. A gauge of factory input prices surged to a five-year high of 69.6.

"Activity levels firmed heading into the year end," said Mr Geoffrey Yu, head of the UK investment office at UBS Wealth Management. "Stabilisation isn't too much of an issue now, compared to the micro-level problems such as liquidity, regulation and the exchange rate."

The readings capped a year of strengthening across indicators, continuing a reversal from the dark outlook last February when the manufacturing gauge fell to 49.

The economy is set to meet the official growth target, posting 6.7 per cent expansions in the first three quarters last year, while factory prices snapped four years of deflation.

The private manufacturing PMI by Caixin Media and Markit Economics confirmed the strength in official data. The gauge advanced to 51.9 last month, the highest since January 2013, data showed yesterday - exceeding the 50.9 estimate in a Bloomberg survey of economists.

It is good news for policymakers shifting to a neutral monetary policy to defend against a trio of threats: a potential pickup in capital outflows after the yuan posted its steepest annual slump in more than two decades; Federal Reserve interest rate rises; and punitive tariffs on China's exports called by US President-elect Donald Trump.

Outflow pressure may resume after Sunday's reset of the country's US$50,000 (S$72,560) cap on how much foreign currency individuals are allowed to convert each year.

An estimated US$689 billion flowed out of China in the first 10 months of last year, a Bloomberg Intelligence gauge shows.

China's foreign reserves, the world's largest stockpile, fell to a five-year low of US$3.05 trillion last November. Data scheduled for release on Saturday will show the hoard fell to US$3.01 trillion, according to the median estimate of economists surveyed by Bloomberg.

China's central bank said last Friday it tightened requirements for lenders to report cross-border transactions by customers to curb money laundering.

Outflows aside, the economy proved bears wrong last year. Growth picked up to about 7 per cent last November, a tracker from Bloomberg Intelligence shows. The manufacturing report showed improving market demand and robust consumption before the new year, the National Bureau of Statistics said on Sunday.

Beyond the main PMI, other early gauges also signal the economy closed out the year on a firmer footing. Large and small firms reported stronger momentum and the mood among executives was the brightest in two years. Sales managers had a stable outlook.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 04, 2017, with the headline 'China's factories end year on a high'. Print Edition | Subscribe