China’s strong recovery shows signs of peaking

3 January, 2021 12:00 AM printer

Beijing: China’s economic recovery could be past its peak and beginning to stabilise as the year draws to a close, with a key manufacturing gauge moderating in December after an export-fuelled boost to production.

The official manufacturing purchasing managers’ index (PMI) fell to 51.9 from a three-year high of 52.1 in November, the National Bureau of Statistics said on Thursday, lower than the median estimate of 52 in a Bloomberg survey of economists, report agencies.

The non-manufacturing gauge, reflecting activity in the construction and services sectors, dropped to 55.7 from 56.4.

While the figures are still above the 50 mark, indicating improving conditions from the previous month, the drop in the manufacturing index was the biggest month-on-month decline since May.

That suggests a moderation in the pace of industrial growth, which has so far been benefiting from the resumption of everyday life in China and overseas demand for pandemic-related goods.

“It’s a gradual plateauing,” said Bo Zhuang, chief China economist at TS Lombard. “We have passed the peak of the strong recovery, as suggested by exports and industrial shortages. I think the PMI from here might be peaking as the credit growth is peaking out.”

The sub-index for new export orders moderated slightly to 51.3 in December from 51.5, suggesting normalisation in demand following a seasonal surge for the Christmas holidays.

“It is still a level that is consistent with very solid growth,” Qian Wang, Asia-Pacific chief economist at Vanguard Group Inc, said in an interview on Bloomberg TV.

“The Chinese economy seems to be holding up pretty well in spite of the second wave on the external side”.

With the coronavirus pandemic largely under control, economists forecast that China is on track to be the only major economy to grow in 2020 with an expansion of about 2 per cent.

Beijing has signalled a gradual withdrawal of the fiscal and credit stimulus it provided this year, while vowing there would be no “sharp turns” in policy support. The non-manufacturing PMI fell to its lowest level since August, as unusually cold weather halted some construction projects and sporadic small-scale virus outbreaks reduced the willingness of consumers to spend on services such as catering.