China’s manufacturing sector grew at the fastest pace since late 2016 in November, supported by a pickup in new orders from both at home and abroad. The Caixin-IHS Markit China manufacturing purchasing managers index (PMI) rose 0.1 points to 51.8 last month, leaving it at the highest level since December 2016. However, analysts warn this does not signal the bottom of China’s economic cycle.
A reading above 50 signals that activity levels at Chinese manufacturing firms improved from a month earlier.
“Despite easing from October, the rate of new order growth remained solid overall with a number of firms citing firmer underlying demand conditions,” IHS Markit said. “Demand from overseas also improved, with export sales picking up for the second month in a row. Though only marginal, it marked the first back-to-back increase in new orders from abroad since early 2018.”
Helped by firmer demand, output levels rose from a month earlier while staffing levels, having fallen in each of the past seven months, stabilised. Purchases of raw materials also picked up while inventories of finished goods declined. Despite the broad improvement across the sector last month, IHS Markit said sentiment towards the outlook in the year ahead deteriorated, falling to a five-month low.
“Stricter environmental policies and market uncertainty were key factors weighing on confidence,” the group said.
Even with the demand-led improvement across the sector, Capital Economics’ senior China economist Julian Evans-Pritchard doesn’t believe it will lead to a broader improvement in the economy in the months ahead.
“With credit growth slowing and property construction still expanding at an unsustainable rate, we doubt this signals the bottom of the current economic cycle,” he told clients.