Manufacturing News

Factory activity growth soars

Momentum in manufacturing returning to pre-pandemic levels, say experts

Factory activity grew at its fastest pace in a decade in November, indicating that economic momentum in the world's second-largest economy is returning to pre-pandemic levels, experts said on Tuesday.

Policymakers are expected to be careful while enacting further policy measures as they do not want the measures to impede the economic recovery, they said.

The Caixin China General Manufacturing Purchasing Managers' Index rose to a 10-year high of 54.9 last month, versus 53.6 in October, pointing to the strongest improvement in operating conditions for Chinese manufacturers in a decade, media group Caixin said in a report.

A PMI reading above 50 indicates expansion, while one below that reflects contraction.

Meanwhile, the official manufacturing PMI also indicated the fastest expansion of the sector for three years. The reading increased to 52.1 in November, the highest level since September 2017, when the reading came in at 52.4, the National Bureau of Statistics said on Monday.

Both PMI readings have beaten market expectations and suggested an accelerating recovery of the Chinese economy from COVID-19, especially in the manufacturing sector, analysts from Nomura Securities said in a report.

Recovery in demand both at home and abroad bolstered the growth in factory activity and has since replaced the work resumption efforts to buoy output, experts said.

Output and new orders grew at the fastest pace in a decade last month, with strong domestic demand sustaining the recovery in demand, the Caixin report said.

New export orders rose steadily as overseas production continued to be hampered by the pandemic uncertainties, with the sub-measure for the category rising on a monthly basis, the report said.

"Manufacturing enterprises bolstered their inventories to meet demand and they were quite confident about the economic outlook for the next 12 months. We expect the economic recovery to continue for several months," said Wang Zhe, a senior economist at Caixin Insight Group.

Experts expect the Chinese economy to post a growth of close to 6 percent during the last quarter of the year. The growth may further rise to double digits in the first three months of next year, thanks to a low comparison base and demand-side recovery for consumption and manufacturing investment, they said.

Zhang Wenlang, chief macroeconomic analyst with investment bank China International Capital Corp Ltd, said the rally in domestic demand should continue to speed up next year as the pandemic situation further stabilizes while household income and employment improve.

China's A-share market rose on Tuesday with the benchmark Shanghai Composite Index rising by 1.77 percent to 3451.94 points, as macroeconomy-sensitive sectors like machinery, financials, and autos rallied, according to market tracker Wind Info.

However, the recovery may begin to lose momentum from the second quarter of 2021, experts said, partly as the pandemic has made market entities more conservative in spending while debt pressure rises after a faster credit expansion this year.

Considering the remaining uncertainties at home and abroad, it requires "careful planning" to withdraw the easing policies launched during the epidemic, Wang said.

Ren Zeping, chief economist of property developer Evergrande Group, said exports and investment in infrastructure as well as real estate have been the main drivers of economic recovery so far but may face downward pressure going forward, while small businesses and the employment situation continues to be under pressure.

While the Caixin survey said manufacturers expanded workforce last month, the larger NBS survey indicated that the contraction in employment persisted.

"It is too early to talk about tightening monetary policy," Ren said, adding that structural liquidity support for infrastructure and hard-hit sectors should continue.

Analysts from Nomura Securities said Beijing is expected to maintain its wait-and-see approach to policy in the near term, neither easing further nor starting to tighten.

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