Economic Watch: China's manufacturing activity holds steady

Source: Xinhua| 2018-01-31 20:47:06|Editor: Mengjie
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BEIJING, Jan. 31 (Xinhua) -- China's factory activity expanded at a slower pace in January but still stood well above the boom-bust line, adding to evidence of a stable broader economy, official data showed Wednesday.

The manufacturing purchasing managers' index (PMI) came in at 51.3 this month, decelerating from 51.6 in December, according to the National Bureau of Statistics (NBS). A reading above 50 indicates expansion, while a reading below reflects contraction.

Despite the slowdown, the index, the same as that of a year ago, suggested the factory activity remained steady, NBS senior statistician Zhao Qinghe said.

Echoing Zhao's remarks, Bloomberg economist Tom Orlik said that although the market may focus on the decline, "small movements in the PMI are not particularly meaningful, and the basic picture of growth at a steady, if unspectacular, pace remains unchanged."

The manufacturing PMI has been in positive territory for 18 straight months.

Sub-indices for production and new orders went down slightly to 53.5 and 52.6, respectively, which Zhao partly attributed to the fact that some industries entering the slack season weighed down growth in supply and demand.

"But manufacturers of consumer products saw more rapid increases due to the upcoming Spring Festival holiday," he said. Sectors including farm produce processing, food and beverages, textiles and garments, and medicine witnessed robust growth.

"Consumption has demonstrated its role in driving the economy," Zhao added.

The Chinese economy is shifting to a consumption-led growth model to wean itself from reliance on exports and investment. Consumption accounted for 58.8 percent of economic growth last year.

Meanwhile, sub-indices for raw material inventory, employment and suppliers' delivery time were still lower than 50. "Businesses saw easing pressure from operating costs," Zhao said.

The NBS data also showed the non-manufacturing sector picked up the pace as its PMI came in at 55.3, up from 55 in December and 54.6 in the same period last year. The index has been on a gaining streak for three months.

The service sector, another economic driver accounting for more than half of the country's GDP, reported stronger expansion with its sub-index rising to 54.4 from 53.4 a month ago. Retail, aviation, telecom, information technology, banking and other commercial services were robust.

"The earliest data of 2018 suggest China's growth momentum is steady, though with some warning signs as export orders fall and the industrial reflation cycle turns down," Orlik said, adding that optimism on growth prospects remains high.

Beijing-based investment bank CICC predicted a "good start" for the economy this year in a research note, citing continued industrial strength and a pick-up in demand growth.

Combined profits of major Chinese industrial firms surged 21 percent last year, the fastest since 2012. "The profitability may improve further in mid-to-downstream industries with the rising inflationary impulse in consumer goods," according to CICC.

China's economy expanded by a forecast-beating 6.9 percent in 2017, speeding up for the first time in seven years and well above the government annual target of around 6.5 percent.

Given the resilience, many financial institutions at home and abroad have announced they will raise their growth forecast for this year.

Still, concerns are on the rise as January's PMIs showed softened export growth as overseas demand had started to retreat after the Christmas and New Year holidays. The revival in exports is considered a significant factor for China to sustain growth.

Orlik cautioned about impacts from trade frictions with the United States, which just boosted tariffs on washing machines and solar panels -- major products of China and the Republic of Korea.

The holiday factor led to seasonal volatility in economic indicators, including trade data, which is normal and will not represent the whole trend in 2018, Bank of Communications said in a report.

"The manufacturing PMI will rise after March and remain in expansion territory," it said.