Diverging China manufacturing PMIs point to mixed outlook in December

Two closely watched surveys covering China's manufacturing sector showed a divergence in economic activity in December, with official government figures pointing to a continued contraction and a Caixin Global report indicating a pick-up in growth.

The manufacturing purchasing managers' index (PMI) from the National Bureau of Statistics declined to 49 last month, from 49.4 in November.

This was the third straight reading below the key 50-point level which separates growth from contraction, and its eighth in the past nine months.

"The biggest constraint on the manufacturing sector hasn't been access to capital but rather weak demand, so expanding manufacturing investment mostly means expanding excess capacity," said Stephen Innes, managing partners at SPI Asset Management.

Government figures for China's non-manufacturing sector, also released Tuesday, showed a continued downturn in the services industry with the sub-index PMI unchanged at 49.3.

"The PMI figures indicate a slowdown in China's economic recovery in the last months of the year. This development is expected to pressure fiscal and monetary policymakers to take urgent action, especially after leaders committed to maintaining a pro-growth stance in 2024," Innes said.

In contrast, the Caixin manufacturing PMI rose to 50.8 from 50.7 in November, ahead of the consensus estimate pointing to a slowdown to 50.4. While growth remains marginal, this was the fourth positive reading in the past five months.

Caixin said the improvement was partly due to a stronger rise in new orders during December, rising at their fastest rate since February 2023. Meanwhile, new export business fell at the softest rate in six months.

However, Caixin said that manufacturers still maintained a "cautious approach" to staffing levels, with employment across the sector falling for the fourth straight month, and at its quickest rate since May 2023.