BEIJING: Factory activity in China unexpectedly returned to growth in November for the first time in seven months, as domestic demand picked up on Beijing’s accelerated stimulus measures to steady growth.
But gains were slight, and export demand remained sluggish. More US tariffs are looming within weeks and Beijing and Washington are still haggling over the first phase of a trade deal.
With China’s economic growth cooling to near 30-year lows and industrial profits shrinking, speculation is mounting that Beijing needs to roll out stimulus more quickly and more aggressively, even if it risks adding to a pile of debt.
The Purchasing Managers’ Index (PMI) bounced back to 50.2 in November, its highest since March, China’s National Bureau of Statistics (NBS) said on Saturday, above the 50-point mark that separates growth from contraction on a monthly basis.
The result compared with 49.3 in October. A poll showed analysts expected the November PMI to come in at 49.5.
The official factory gauge pointed to an improvement in China’s vast manufacturing sector last month. Total new orders bounced back to expansionary territory with the sub-index rising to 51.3, the highest level seen since April.
That indicates domestic consumption firmed up after Beijing repeatedly urged local governments to kick stimulus up a gear to meet economic goals before year-end. Factory output also rose to 52.6 in November, marking the strongest pace since March.
“In the short-term, we may have already passed the low point where the economy hit the bottom,” Zhang Deli, a macro analyst with Lianxun Securities, wrote in a note.
Beijing has front-loaded 1 trillion yuan ($142 billion) of a 2020 local government special bonds quota to this year and has urged that they be issued and used as early as possible to boost infrastructure investment. Some analysts say that could be a sign that the government is worried about downward economic pressure.
Zhang attributed to the better-than-expected November PMI to a government push on infrastructure investment, less property market control, and a de-escalation in US-China trade tension in October, when both sides said they had substantially reached a “Phase 1” agreement and the United States delayed a tariff increase scheduled to take place on October 15.
But recent developments underscore rising uncertainties in the trade conflict, which bodes ill for the outlook for external demand. New export orders fell for an 18th straight month in November, albeit at a slower pace, with the sub-index rising to 48.8 from 47.0 in October.
US President Donald Trump said this week that the world’s largest economies are close to reaching agreement on the first phase deal. But trade experts and people close to the White House said it could slide into the new year, given China is pressing for more extensive tariff rollbacks.
An additional 15 per cent in US tariffs are scheduled to take effect on about $156 billion of Chinese products on December 15.
Trump has also highlighted Washington’s support for protesters in Hong Kong, potentially a huge sore point for China.
The PMI survey also indicated factories continued to cut jobs in November despite slightly improved business confidence, while it signaled a further deterioration in profits for Chinese manufacturers, with output prices falling into a three-month low.
— Reuters
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