The reports coming from Beijing notes that manufacturing activity shrinks again in China for the third-straight month in December and has weakened more than expected, reducing the expectations of economic recovery in the coming months.
The Chinese government in recent months has been introducing a series of new policies to help sustain a feeble recovery post-covid. The economic recovery in China has been held for more than a year by a serious property slump, reducing global demand, and the increasing risk of local debts.
Despite these measures, the world’s second largest economy is yet to show a positive sign.
According to the figures released on Sunday, the official Purchasing Managers Index (PMI) fell from 49.4 to 49.0 points in December, which is lower than the forecasted 49.5 points, conducted by Reuters poll.
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The Chinese Bank
As the manufacturing sector in China shrinks for the third-straight month in December, there are multiple voices being raised to step up the policy measures in order to bring the world’s second largest economy back on track.
Nie Wen, an economist at Hwabao Trust said that, “the government must step up policy support, otherwise the trend of dwindling growth will continue.” He is expecting the central bank to cut interest rates and banks’ reserve requirement ratios (RRR) in the coming weeks.
He added this by saying that, “falling prices have greatly affected companies’ profits and further affected people’s employment and incomes. We are seeing a vicious cycle.”
Meanwhile, China’s central bank after looking at the economic condition in the country, hinted on Thursday that it would step up its policy support to the economy to promote a recovery in prices, amid rising deflation in the country.
Earlier in December, top Chinese officials in a meeting to map the course of the economy in 2024, vowed to take further steps to support the economic recovery in the coming months. Moreover, in convergence of this policy, five of China’s state banks have lowered the interest rates on some types of deposits in the month of December. This is the third instance of reducing interest rates this year, taking the central bank towards easing monetary policy.
The Chinese government unveiled a plan in October to issue 1 trillion yuan or $140.89 billion to fund investment projects, and is likely to focus more on fiscal measures to support growth in the next year.
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Weakening Demand
Falling consumer prices is another main reason for a shrinking manufacturing sector in China, which fell the fastest in the last three years, while the deflation deepened due to a weakening local demand.
According to the statistical bureau, “the current external environment is increasingly complex, severe, and uncertain. Some companies in the survey reported that reduced overseas orders and insufficient domestic effective demand are the main difficulties faced by them.”
As per the PMI survey, the new order sub-index was at 48.7 points, contracting continuously for the third month, while the new export orders index registered 45.8 points in December, the ninth contraction in this year.
However, the official non-manufacturing purchasing managers index, which includes services and construction sector, rose slightly in December from 50.2 to 50.4 points, aided by a services sector recovery.
China’s economic growth is on track to hit the official target of 5% this year, and is expected to maintain the target in 2024 as well.
($1 = 7.0978 Chinese yuan)