A private gauge of factory activity in China showed an increase in December.
The mentioned result is radically different from official statistics, according to which the prospects of the national producers of the specified Asian country are characterized by instability.
The Caixin manufacturing purchasing managers’ index was fixed at 50.8 in December. In November, this figure was 50.7. The December result is the strongest since August. Also, the indicator for the last month of 2023 exceeded the preliminary estimates of economists.
A value of the manufacturing purchasing managers’ index above 50 indicates expansion. The result below this mark provides for a reduction.
A private gauge of factory activity in China was published after an official report was released last weekend, according to which activity in plants in this country in December reached the lowest level in the last six months. The data differs due to different sample sizes, differences in geographical coverage, and types of production facilities. The results of the Caixin survey generally surpassed the official figures for 2023.
Michelle Lam, economist for Greater China at Societe Generale SA, commenting on the gauge factory activity indicator, said that these data indicate that the production sector is currently on a fragile recovery. The expert also says that the Caixin survey may indicate a more favorable situation in the sphere of small and medium-sized businesses.
A positive gauge indicator of factory activity proved insufficient to stimulate markets. On Tuesday, January 2, Chinese stock indexes continued to stay within the dynamic decline. The Hang Seng China Enterprises index fell 1.8%. The onshore benchmark CSI 300 decreased by 1.1%.
The offshore yuan exchange rate is about 7.13 per dollar, which indicates that there are no changes in this indicator. The yield on 10-year government bonds continues to be stable, remaining at about 2.55%.
Marvin Chen, an analyst at Bloomberg Intelligence, commenting on the survey published by the National Bureau of Statistics, said that the scale of the decline is smaller than the disappointment with the NBS business activity index data. According to the expert, there are currently signs of an uncertain recovery.
Economists Chang Shu and David Qu say that the unexpected increase in the index based on the results of a private survey contrasts with official data indicating a decline in manufacturing activity for the third month in a row. According to them, the official information is consistent with high-frequency indicators. Experts suggest that Caixin will not in some way influence the actions and decisions of Chinese politicians. Economists have separately noted the growing likelihood that the People’s Bank of China will cut its key rate in January.
Private surveys provide an opportunity to form a kind of earlier understanding of the trajectory of the Chinese economic system. The country’s recovery after the abolition of the zero-tolerance policy for coronavirus last year turned out to be an uneven and unstable process that did not meet the expectations of many analysts and the public. The crisis in the Chinese real estate sector continues to be a factor of significant pressure on the entire economic system of the country. Against this background, consumer sentiment and confidence are deteriorating. Also, the Chinese economy is in the zone of painful influence of such an external factor as tension in the area of geopolitical relations.
In a New Year’s address, the head of the People’s Republic of China, Xi Jinping, promised to strengthen the economic momentum. He also announced his intention to create new jobs. In this address, the head of the People’s Republic of China also separately noted that 2023 was a difficult period for many local companies and citizens. This is an example of a rare recognition of internal problems by the Chinese authorities.
At the same time, Xi Jinping, in his New Year’s address, positively assessed what he described as China’s manufacturing prowess. The Chinese head also announced a list of local major projects, including space programs and making electric vehicles.
Official data indicate that Chinese factories are currently trying to overcome two difficulties, among which are weak consumer demand and low profit revenue. Manufacturers’ investments are being held back. The reason for this circumstance is that the authorities allocate financial resources to implement a policy for the development of advanced production and advanced technologies.
A statement from Caixin and S&P Global released on Tuesday, January 2, contains information that manufacturers reported a significant increase in production and new orders in December. However, this positive background did not help to improve the mood in the business environment. Currently, what can be described as a lack of confidence is being fixed in this space. The statement also notes that the number of staff of Chinese manufacturers decreased in December. This trend has been recorded for the fourth month in a row. Companies take a cautious approach to hiring. Deflationary pressure also persisted in December.
In the last months of 2023, Beijing stepped up economic stimulus to achieve this system’s growth target of about 5%. Experts expect the growth target for 2024 to be similar. To achieve this result, additional government support measures will be needed this year.
In December, the largest state-owned banks in China lowered deposit rates. Over the past year, lenders have made this decision three times. Against this background, there were expectations that the People’s Bank of China would reduce loan rates in early 2024.
Analysts at SWS Research Co. assume that the financial regulator of the Asian country will cut rates on strategic loans in January. In their opinion, this decision will stimulate weak domestic demand and support the sluggish interest of the economy in lending proposals. Analysts also noted that banks can cut by a larger margin than the policy rate reductions.
Robert Carnell, regional head of research in the Asia-Pacific region at ING Groep NV, says that the dynamic of the yuan exchange rate may affect any timing of rate cuts. According to him, the Chinese financial authorities are concerned about weak economic growth, but their options are limited. He noted that the net flows of foreign direct investment in the Asian country are negative. In this context, the expert said that local authorities may be concerned about increased capital outflow. Robert Carnell believes that there will be no rate cut in China until the exchange rate of the yuan traded offshore approaches 7 per dollar.
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