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Activity in China’s manufacturing sector increased in December as the world’s second-largest economy maintained its recovery at pre-pandemic levels, a business survey showed on Monday, but mounting cost pressures slowed the pace of expansion.
The Caixin / Markit Manufacturing Purchasing Managers Index (PMI) fell to 53.0 from 54.9 in November, and the indicator remained well above the 50 level that separates growth from contraction, but did not meet expectations and it declined at the easiest rate in three months.
Analysts polled by Reuters had forecast the headline reading to slide to 54.8.
China’s vast industrial sector has seen an impressive recovery from the impact of the coronavirus thanks to surprisingly strong exports. The economy is expected to expand around 2% throughout 2020, the weakest pace in more than three decades, but much stronger than other major economies still struggling to contain infections.
However, stricter coronavirus control measures in many of its key trading partners in the west could affect industrial demand, affecting the recovery.
Caixin’s PMI reading comes after an official indicator of factory activity, which focuses more on larger and state-owned companies, also moderate but staying strong.
“The negative impact of the pandemic on the national economy diminished even more and the manufacturing industry continued to recover. Both supply and demand continued to improve. Demand abroad also increased steadily, ”wrote Wang Zhe, senior economist at Caixin Insight Group, in a note accompanying the survey statement.
The private sector survey also showed that input prices rose sharply, at the fastest pace since 2017, and more expensive raw materials, especially metals, were to blame for the increase. Chinese factories also laid off more workers than they hired for the first time in four months, although the decline was modest.
“We must pay attention to the increasing pressure on costs caused by the increase in raw material prices and its adverse impact on employment, which is particularly important for the design of the stimulus exit policies implemented during the epidemic”, said Wang.
Indicators for both total new orders and factory production fell from November but remained strong. The growth of new export orders also slowed.
“We expect the economic recovery in the post-epidemic era to continue for several months, and the macroeconomic indicators will be stronger in the next six months, taking into account the low bases in the first half of 2020,” said Wang.
Source: Reuters (Gabriel Crossley Report; Edited by Sam Holmes)
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