Workers producing clothes in a factory in Huaibei, China.
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The Markit/Caixin Purchasing Managers’ Index (PMI) for manufacturing came in at 51.5 in December — analysts polled by Reuters had expected the private manufacturing PMI to come in at 51.7 in the last month of the year. The Caixin PMI was at 51.8 in November.
PMI readings above 50 indicate expansion, while those below that level signal contraction.
IHS Markit and Caixin said in a press release that domestic demand expanded in December, but the pace of expansion was slower than in October and November. There was also an improvement in business sentiment, they said.
On Tuesday, China released official manufacturing PMI for December that was slightly above expectations at 50.2, data from the country’s statistics bureau showed.
Investors are keeping a close watch on the health of China’s economy amid a long-drawn trade conflict between the U.S. and China which has weighed on sentiment.
The official PMI survey typically polls a large proportion of big businesses and state-owned enterprises. The Markit/Caixin survey features a bigger mix of small- and medium-sized firms.
On December 13, the U.S. and China announced they had reached a phase one trade deal including some tariff relief, increased agricultural purchases and structural change to intellectual property and technology issues. U.S. President Donald Trump has said he will be signing the phase one deal with China at the White House on Jan. 15.
“Subdued business confidence was a major factor behind the economic slowdown this year,” said Zhengsheng Zhong, director of macroeconomic analysis at Caixin subsidiary CEBM Group. “As the phase one trade deal between China and the U.S. has sent out positive signals, there is room for a recovery in business confidence, which should be able to help stabilize the economy.”
Although China’s manufacturing PMI ended 2019 in expansionary territory, compared to a contraction at the start of the year, it doesn’t mean that the worst is over for the world’s second largest economy, said Julian Evans-Pritchard, senior China economist at Capital Economics, a consultancy.
“While it does appear that export growth is bottoming out, downside risks to domestic demand, especially from the property sector, still cloud the outlook,” Evans-Pritchard wrote in a note on Thursday.
“Looking ahead, we think that exports will continue to benefit from recovering global demand and (at the margin) US tariffs rollbacks. But domestic demand will probably cool further,” he added.
The Chinese central bank will have to depend on monetary policy adjustments more than many had expected in the coming quarters, said Evans-Pritchard.