China’s Economic Recovery Hits a Snag
Despite Beijing’s stimulus measures, China’s factory activity growth in December fell short of expectations, indicating that the country’s economic recovery is still struggling to gain momentum.
Manufacturing Activity Slows
The official purchasing managers’ index (PMI) for December came in at 50.1, lower than the expected 50.3. While a reading above 50 indicates expansion, the latest figure suggests that the economy is still not out of the woods. In fact, manufacturing activity has been stuck in a narrow range, with November’s reading at 50.3 and October’s at 50.1.
Bright Spots in Non-Manufacturing Sector
On a more positive note, China’s non-manufacturing PMI, which covers the services and construction industries, rose to 52.2 in December, up from 50.0 the previous month. Out of the 21 industries surveyed, 17 showed higher activity, including aviation, transportation, and telecommunications. The construction industry also returned to expansion, driven by the upcoming Spring Festival holidays.
Expert Insights
“I think one of the reasons we had a big swing in the non-manufacturing PMI last month was partially because construction PMI declined a lot,” said Tommy Xie, head of Asia macro research at OCBC. Meanwhile, Larry Hu, Macquarie Group’s chief China economist, noted that “deflationary pressures have persisted as policy stimulus is just enough to hit the GDP target, but far from enough to reflate the economy.”
Recovery Still Ongoing
Despite the challenges, experts believe that China’s economy is still on the path to recovery. “Overall, we are still seeing that recovery is still ongoing,” said Xie. “China is going to achieve around 5% growth target for this year, maybe around 4.9%.” The World Bank has also raised its forecast for China’s economic growth in 2024 and 2025, reflecting recent policy adjustments.
Challenges Ahead
However, China’s economy still faces significant headwinds, including tepid consumer demand and a prolonged downturn in the property market. The country’s consumer inflation fell to its lowest level in five months in November, while export and import figures fell short of expectations. Additionally, the latest retail sales data disappointed, missing forecasts. China’s industrial profits also extended declines to a fourth straight month, dropping 7.3% in November from a year earlier.
Government Support
To address these challenges, China’s authorities have announced plans to increase fiscal support next year, including expanding consumer goods trade-ins, raising pensions, and providing medical insurance subsidies for residents. The government will also issue 3 trillion yuan ($411 billion) in special treasury bonds next year, the largest amount on record, to ramp up fiscal stimulus efforts.
Global Uncertainties
Looking ahead, China’s economy will face greater challenges with Donald Trump in the White House. Trump’s threat to impose higher tariffs on Chinese goods could further dent China’s export sector, which is already dealing with increased trade barriers from the European Union.
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