World Economy

China PMI Improves

China PMI ImprovesChina PMI Improves

A monthly survey shows that a contraction in Chinese manufacturing eased slightly in December, while service industries continued to expand.

The numbers were a potential sign of recovery among exporters in the world’s No. 2 economy, while reflecting the government’s efforts to shift the economy’s focus from manufacturing and exports to services and domestic consumption. AP reported.

The purchasing managers’ index for manufacturers, compiled by the Chinese Federation for Logistics and Purchasing, came in at 49.7 in December, up from 49.6 in November—which was its weakest point in three years. A similar index for service industries continued an expansion, coming in at 54.4 for December, up from 53.6 in November.

The federation quoted analyst Zhang Liqun as saying that the December figures mean that the government’s projected economic growth rate for the year of 7% can be achieved.

New orders and exports orders increased in December, while inventories declined, Zhang said, showing that “enterprises’ production and business activities are recovering.”

China’s national bureau of statistics said that in spite of the slight improvement in the PMI, financial tensions had become “more prominent” toward the end of the year and “the downward pressure on manufacturing was still relatively big”.

But the statistics agency said the services sector, which has been performing relatively well, had continued to grow last month.

With China poised to post its slowest annual economic growth rate in 25 years, the country’s economic planners promised more “proactive” and “flexible” fiscal and monetary policies at the conclusion of the annual Central Economic Work Conference last month.

In an effort to support the economy, the central bank has cut interest rates six times since November 2014 and reduced the reserve requirement ratio for banks, freeing up cash for them to lend.

Economists at Nomura said the headwinds for the Chinese economy “remain strong”, predicting that gross domestic product growth would slow to 6.4% in the fourth quarter from 6.9% in the third quarter.

They said there was a “medium to high likelihood” of further monetary easing in January, forecasting two cuts to the benchmark lending rate and four reductions of the RRR in 2016.

But, monetary policy aside, the government has struggled to convince foreign investors it is making headway with bold “supply side” reforms it has been promising for two years.

It has begun reorganizing the state-owned companies that dominate the economy but while Beijing has been talking of moving to a more market-orientated system, the government remains reluctant to give up control.