Private PMI signals continued expansion

China’s manufacturing sector continued to improve in December, with firms registering a further rise in output, according to a private survey.

The Markit/Caixin Purchasing Managers’ Index (PMI), which offers a glimpse into the operating environment of smaller manufacturing firms, came in at 51.5, compared with 51.8 in November.

The index is closely watched as an alternative to the official PMI, which stood at 50.2 for December, unchanged from a month earlier.

PMI readings above 50 indicate expansion of the manufacturing sector, while readings below that level signal contraction.

The Markit/Caixin survey features more smaller firms, while the official PMI survey typically polls a large proportion of big businesses and state-owned enterprises.

The rising PMI data indicates a moderate expansion in China’s manufacturing sector during December, said Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group.

Weighing on the headline index was a softer upturn in total new business at the end of the year. New order growth softened to a three-month low, and export orders rose only slightly, with both indexes still above the 50-point level.

According to the report, both domestic and foreign demand improved, though export work continued to rise only slightly overall.

New orders also lead to expanded production. An output sub-index remained at a relatively high level, despite dipping slightly.

Staffing levels were unchanged in December.

As production expanded at a relatively fast pace, input deliveries, order backlogs and inventories all saw positive changes.

A sub-index for inventories of purchased items rose further into positive territory, but the gauge for stocks of finished goods also rose and returned to expansionary territory.

According to the report, the upturn of stocks of finished goods is due to improving demand expectations.

“Subdued business confidence was a major factor behind the economic slowdown this year," said Zhong. "As the phase-one trade deal between China and the US has sent out positive signals, there is room for a recovery in business confidence, which should be able to help stabilize the economy."

On Wednesday, the People’s Bank of China announced it would lower the amount of cash that all banks need to hold as reserves in a bid to support the economy starting from Monday.