China manufacturing activity expands for third month but just barely

BEIJING - Chinese manufacturing activity grew for a third straight month in December but barely, an official factory survey showed on Dec 31, suggesting the effects of policy stimulus may take more time to lend support as fresh trade risks loom.

The National Bureau of Statistics purchasing managers’ index (PMI) slowed to 50.1 in December from 50.3 in November, staying above the 50 mark separating growth from contraction but missing a median forecast of 50.3 in a Reuters poll.

China’s economy has struggled to recover from the Covid-19 pandemic amid weak consumption and investment.

Policymakers, however, are hopeful that fiscal and monetary measures unveiled in late 2024 will spark a turnaround in the property market, which has been a drag on the broader economy.

Improved domestic demand could benefit manufacturers amid a global economic slowdown, reducing the impact of US President-elect Donald Trump’s proposed new tariffs on Chinese goods.

Mixed industrial output and retail sales data for November released earlier in December underscore how challenging it will be for Beijing to mount a durable economic recovery heading into 2025.

Government advisers are recommending the economy maintain a growth target of around 5 per cent in 2025 and that policymakers ramp up consumer-focused stimulus.

The non-manufacturing PMI, which includes construction and services, rose to 52.2 in December, after it slowed to 50 in November.

Trump has vowed to impose a 10 per cent tariff on Chinese goods to compel Beijing to halt the trafficking of Chinese-made chemicals used in fentanyl production. He also threatened tariffs in excess of 60 per cent on Chinese goods during his campaign, posing a major growth risk for the world’s top exporter of goods.

At an agenda-setting meeting earlier in December, policymakers pledged to increase the budget deficit, issue more debt and loosen monetary policy to support economic growth.

The World Bank last week raised its growth forecasts for China for 2024 and 2025, but warned that subdued household and business confidence, and headwinds in the property sector, would weigh on economic growth in 2025.

Stabilising the property sector, which at its peak in 2021 accounted for around a quarter of the economy and where 70 per cent of household savings is parked, is critical for Beijing to revive domestic consumption and improve sentiment among factory owners.

Analysts polled by Reuters forecast the private sector Caixin PMI at 51.7. The data will be released on Jan 2. REUTERS