China factory activity unexpectedly returned to growth in November

Marco Green
December 2, 2019

Official manufacturing PMI jumped to 50.2 in November, after 6 consecutive months below 50. Though the rate was only marginally higher, it marks the strongest expansion since December 2016.

Despite the slower pace of decline, the index stayed below the 50.0 threshold that separates contraction from expansion for a seventh month, marking the longest such run since a nine-month stretch from June 2012 to February 2013. Economists polled by Reuters had expected a dip to 51.4.

Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, noted both domestic and overseas demand rose in November.

"Manufacturing investment may be lingering near a recent bottom", Zhang wrote in a release accompanying the data.

The reading comes as Beijing and Washington edge towards a partial deal to a trade war that has dragged on for almost 20 months.

China's factory activity rebounded for the first time in seven months in November, data showed on Saturday, despite the looming threat of the new U.S. tariffs in few weeks if Beijing and Washington fail to sign a partial trade deal. Production (down 5.8 points to 49.7), sales (down 2.9 points to 49.2) and exports (down 2.0 points to 49.8) all weakened to a position of stability, with finished stocks the only index to remain in expansion (up 4.2 points to 52.6). The two surveys also cover different geographical areas.

The PMI survey also indicated factories continued to cut jobs in November despite slightly improved business confidence, while it signalled a further deterioration in profits for Chinese manufacturers, with output prices falling into a three-month low.

A sub-index of new export orders climbed to a seven-month high at 48.8 on easing trade tension, but was still in contraction.

"Inventories of inputs also fell at a sharp rate, suggesting that firms are not expecting output requirements to rise anytime soon".

In terms of fiscal policy, the Ministry of Finance has announced a new quota of 1 trillion yuan ($142 billion) of local government special bonds for 2020 and urged that the bonds be issued and used "as early as possible" to boost infrastructure investment.

A central bank official said on Friday that China has room to ease monetary policy further, but authorities should not be careless in how they use such stimulus options, reinforcing its cautious stance.

US President Donald Trump said this week that the world economy close to reaching an agreement on the first phase of the agreement.

Other reports by Click Lancashire

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