China lifts factory mood across Asia amid hints of recovery

An employee working on aluminium products at a factory in Shandong province last month. Though Chinese factory activity has picked up, economists say much depends on how the ongoing US-China trade talks play out and how sustained the upswing in China
An employee working on aluminium products at a factory in Shandong province last month. Though Chinese factory activity has picked up, economists say much depends on how the ongoing US-China trade talks play out and how sustained the upswing in China proves.PHOTO: AGENCE FRANCE-PRESSE

HONG KONG • A surprise pickup in China's factory sentiment filtered across Asia last month, though there were few signs of a strong rebound yet.

While Purchasing Managers' Indexes (PMIs) for South Korea, Japan, Malaysia and Indonesia nudged higher, they all stayed in contraction territory below 50, data from IHS Markit showed yesterday. Taiwan held steady at 49.8, while Thailand dropped to 49.3.

India's manufacturing PMI rose to 51.2 from a two-year low of 50.6 a month ago, signalling momentum in production. Vietnam's PMI edged higher to 51 from 50, indicating that a recent soft patch in trade may have run its course.

Much of the better mood was down to China's improved performance in the month. The Caixin index, which is more weighted towards China's private manufacturing companies, rose to 51.8 from 51.7, showing factory activity picking up to a near three-year high.

That followed news on the weekend that China's official manufacturing PMI jumped to 50.2, the first reading above 50 since April. The 50-mark separates expansion from contraction on a monthly basis.

"China is a major export destination for the rest of the region," Mr Alex Holmes, an economist at Capital Economics in Singapore, wrote in a note.

"Although we remain sceptical that activity is as strong as the Caixin PMI implies, the synchronised improvement in the survey data does point towards an uptick in growth in China last month, providing some hope for export-focused industry in the rest of the region."

The improvement in the PMI comes amid mixed signals for the region's economy.

Much of the better mood was down to China's improved performance in the month. The Caixin index, which is more weighted towards China's private manufacturing companies, rose to 51.8 from 51.7, showing factory activity picking up to a near three-year high.

While Japanese companies increased capital spending from the previous year by more than expected last quarter, in trade-reliant South Korea, export demand continued to slide. Shipments dropped 14.3 per cent last month from a year earlier, the sixth straight double-digit decline, data from the trade ministry showed on Sunday.

The nation's better PMI was helped by an uptick in electronics demand linked to new smartphone and automotive product launches.

In Japan, factories remain dogged by soft demand, according to Mr Joe Hayes, an economist at IHS Markit.

"Export orders dropped at the fastest rate since mid-year amid reports of demand weakness at key trade destinations, namely China," he wrote in a report.

Much now depends on how the ongoing trade negotiations between the US and China play out and how sustained the upswing in China proves.

"Considerable challenges remain," said Ms Chang Shu, chief Asia economist for Bloomberg Economics. "Meaningful stabilisation hinges on whether the US and China can strike a 'phase one' deal."

But such a deal could slide into next year as Beijing presses for more extensive tariff rollbacks, and the Trump administration counters with heightened demands of its own.

China's Global Times newspaper said on Sunday that Beijing is demanding that Washington remove existing tariffs, not just planned tariffs, as part of the deal.

Meanwhile, additional US duties on Chinese exports are set to kick in on Dec 15.

Months of protests in Chinese-ruled Hong Kong have also exacerbated tensions and may stall a trade deal after the US passed legislation backing protesters in the city.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on December 03, 2019, with the headline 'China lifts factory mood across Asia amid hints of recovery'. Print Edition | Subscribe