Manufacturing sector in China expanded in December 2016

The manufacturing sector in China expanded for the fifth consecutive month in December, but growth slowed more than expected in a sign that the government measures to rein in rising asset prices are beginning to have a knock-on effect on the wider economy.

The official Purchasing Managers’ Index (PMI) was on the level of 51.4 points in December compared to 51.7 points in November. The values above 50 indicate expansion on a monthly basis, while those below 50 indicate contraction. The data for December were slightly below forecast for level of 51.5 points.

The housing boom in the second half of 2016 and the government investments in infrastructure have helped to promote commodity prices (from cement to steel), giving the necessary acceleration of the manufacturing sector. But the government take measures against the speculative property buyers, a number of signals from the authorities that will take measures against inflating balloons of raw materials and increasing debt – even at the expense of slower growth. This means that the additional stimulus measures could be limited.

Today’s data suggest that changing the tone of politics took its toll as the authorities are seriously concerned about asset bubbles.

The factory production slowed in December, as the sub-index delayed to 53.3 points compared with 53.9 in the previous month. The overall new orders stop growth and reached level of 53.2 points during the last month. The cuts in positions, although slow to the slowest pace in ten months remain pronounced. The sub-index of employment fell to 48.9 points against 49.2 points in November, as Beijing has pledged to reduce excess production in a number of industries. A sub-index of smaller companies fell too, while those of productivity in larger companies also deteriorated.

The report of the economic magazine Caixin for Purchasing Managers’ Index in industry and services, which focuses on small and medium-sized enterprises, will be presented on January 3. The analysts expect it to drop to 50.7 points from 50.9 points a month earlier.

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