BEIJING, Jan. 4 (Reuters) – Activity in China’s manufacturing sector increased in December, as the world’s second largest economy sustained its recovery to pre-pandemic levels, business research showed on Monday, however, the increase in cost pressures slowed the pace of expansion.
The Caixin / Markit Manufacturing Purchasing Managers’ Index (PMI) dropped to 53.0 from November 54.9, with the indicator well above the 50 level that separates growth from contraction, but losing expectations and decreasing to the more rapid pace smooth in three months.
Analysts surveyed by Reuters predicted that headline reading would drop to 54.8.
China’s vast industrial sector has made an impressive recovery from the coronavirus shock, thanks to surprisingly strong exports. The economy is expected to grow by about 2% throughout 2020 – the weakest pace in more than three decades, but much stronger than other large economies still struggling to contain infections.
However, tougher measures to control the coronavirus in many of its main trading partners in the west could hurt industrial demand, weighing on the recovery.
The reading of the Caixin PMI comes after an official indicator of manufacturing activity, focusing more on larger and state-owned companies, also moderate, but remained strong.
“The negative impact of the pandemic on the domestic economy has further diminished and the manufacturing industry has continued to recover. Both supply and demand continued to improve. External demand has also increased steadily, ”wrote Wang Zhe, senior economist at Caixin Insight Group, in a note accompanying the launch of the survey.
Private sector research also showed that input prices rose sharply, at the fastest pace since 2017, with more expensive raw materials, especially metals, being responsible for the increase. Chinese factories have also laid off more workers than they hired for the first time in four months, although the decline was modest.
“We need to be aware of the increasing cost pressure brought about by rising raw material prices and their adverse impact on employment, which is particularly important for designing the exit from stimulus policies implemented during the epidemic,” said Wang.
Meters for total new orders and factory production fell from November, but remained strong. Growth in new export orders has also slowed.
“We expect the economic recovery in the post-epidemic era to continue for several months and the macroeconomic indicators will be stronger in the next six months, taking into account the low bases in the first half of 2020,” said Wang. (Reporting by Gabriel Crossley; Editing by Sam Holmes)