Chinese manufacturing activity eases in December

Activity in the Chinese manufacturing sector eased a touch in December, according to a private survey released on Thursday.

The Markit/Caixin purchasing managers’ index printed at 51.5 for December 2019, down from a two-year high of 51.8 in November and below expectations for a reading of 51.7. Still, it remained above the 50 mark that separates contraction from expansion.

The sub-index for new orders fell for the second month in a row, while the index for export orders ticked lower but remained above 50. The sub-index for output also nudged down for the second month in a row.

Gareth Leather, senior Asia economist at Capital Economics, pointed out that even though it dipped, the PMI remained close to November's reading.

"The reading has previously been a good leading indicator of export demand elsewhere in Asia, but the two series have diverged recently. The official PMI was unchanged at 50.2 last month. China is a major export destination for the rest of the region. Although we remain sceptical that activity is as strong as the Caixin PMI implies, the strong survey data do suggest in growth in China is holding up better than expected, providing some hope for export-focused economies in the rest of the region."

Pantheon Macroeconomics said the Caixin manufacturing PMI was due a correction.

"The index was well above its uptrend, so a decline is not surprising," said senior Asia economist Miguel Chanco. "Without the phase one trade deal it would have been worse. With the index in correction mode, we are reticent to read too much into the details, but the loss of momentum in new orders is disappointing, chiming with the official report.

"Export orders appear to have been aided by the deal prospects, falling by less than the overall orders gauge, though the sub-index remained only slightly above 50.

"Headcount was unchanged, underlining the fragility of the recovery here. We reckon the labour market is still due some deterioration. Manufacturing activity has only just begun to stabilise, and employment tends to lag."

Chanco said the phase one trade deal should continue to help these data in January as more details emerge. "But it remains above trend, and continues to look unsupported in the context of tight monetary conditions."