China’s factory PMI shows stabilization

Bloomberg

China’s official factory gauge started the new year on a robust note, giving policy makers a buffer to transition to neutral policy settings as they prepare for potential trade tensions with a Donald Trump-led White House.
Manufacturing purchasing managers index was 51.3 in January, compared with a median estimate of 51.2 in a Bloomberg survey of economists and 51.4 in December. Non-manufacturing PMI was at 54.6 versus 54.5 in December Numbers higher than 50 indicate improving conditions.
China notched a 6.7 percent full-year expansion last year, with growth quickening to 6.8 percent in the last quarter. Early private indicators for January, such as readings based on satellite views, suggest manufacturing remained robust into 2017.
The slight pullback from December may have much to do with
seasonal effects as the week-
long Lunar New Year holiday typically weighs on the manufacturing reading in January and Febr-
uary. This year, the holiday started Jan. 27, shutting factories across the nation.
“We believe that the manufacturing sector will continue to underperform the services sector,” analysts at BMI Research, Fitch Group’s research arm, wrote in a note. “Weaker domestic demand and an uncertain external environment due to rising US protectionism will weigh on the former, while services will benefit from continued investment by the government and the private sector.”
“It’s a good number,” said Iris Pang, senior economist for Greater China at Natixis Asia Ltd. in Hong Kong. She said the performance was most likely driven by new manufacturing sectors such as industrial robots and new energy cars. At the same time, a reduc-tion of excess capacity in the coal and steel industries is also help-ing. “The clean up of the over capacity sectors such as coal and steel has been almost completed,” Pang said. “Steel is ongoing, but coal is completed so the manu-
facturing data on coal and steel could be positive.”
“Behind the headline is still an outperformance of large enterprises, suggesting that China’s manufacturing industry continues to consolidate,” said Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “Looking ahead, the government will continue to juggle growth and capacity reduction. This headline PMI will still stay above the threshold of 50, but it’s hardly impressive.”
On the manufacturing gauge, readings on output, new orders and input prices pulled back from a month earlier. Large enterprises outperformed, while small firms continued to post deteriorating conditions China’s stock market was closed for the Chinese New Year holidays.