The recovery of the purchase manager’s index (PMI) signaled that the production and demand were taking a turn for the better and the market expectation got improved. PMI continued its growing momentum in November and managed to stay above the expansion-contraction line for four consecutive months, which revealed that the economic growth had been better poised for picking up. According to expert opinions, the possibility for the Chinese economy to bottom out would further increase in Q4 and thus it is predicted that the annual economic growth can beat the expected target.
The Service Survey Center of the National Bureau of Statistics of China (NBS) and China Federation of Logistics & Purchasing (CFLP) jointly published the Chinese manufacturing PMI and the non-manufacturing business activity index on December 1, 2016. As shown by the data, the manufacturing PMI in November stood at 51.7%, the new high in the past two years while the non-manufacturing PMI reported 54.7%, the highest level since July 2014.
In the view of experts, the major economic indicators of China delivered a satisfactory performance overall and it was estimated that the annual economic growth could beat the expected target. However, attention should be paid to such bad symptoms as the mounting business cost and the supply crunch of some energy and raw materials.
Manufacturing showed an increasingly upward trend.
The manufacturing PMI in November reached 51.7%, up 0.5 percentage point over previous month. Continuing its upward momentum, it managed to stay above the expansion-contraction line for four consecutive months, hitting a new high in the past two years. This also attested to the sound economic operations at present. Better poised for picking up, the Chinese economy was displaying a more prominent momentum for robust growth.
Research fellow Zhang Liqun from the Department of Macroeconomic Research of the Development Research Center of the State Council of P.R.C. (DRC) pointed out that the success of PMI in staying above the expansion-contraction line for four months in a row sent a clear signal of the economic growth rate bottoming out. Additionally, a greater number of companies were supplementing their inventories. The comprehensive study concluded that the Chinese economy was very likely to grow steadily.
Specifically, in November the market demand continued to pick up and the new orders index rose by 0.4 percentage point following an increase of 1.9 percentage points in October and exceeded 53%, 3.4 percentage points higher over the same period of previous year.
Due to demand recovery and growing prices, companies demonstrated optimistic expectations and strong intention for production expansion. Despite a slight fall, the business activities expectation index still remained above 55%, which was a high level. The production index approached 54%, up 0.6 percentage point over previous month and hitting a new high since January 2014. Companies planned production and made purchase actively, with more raw materials stocked up. Indices including purchase volume, import volume, and raw materials inventory all grew, hitting a new high since August 2014.
In November, among the surveyed 21 industries, 16 had their PMI go back to above 50%, suggesting most industries had walked out of shrinkage and depression preliminarily and embarked on a path of pickup. Especially, agricultural & sideline food processing industry, petroleum processing and coking, and automobile manufacturing grew by the most prominent range and all of them drove up the overall manufacturing index by over 0.2 percentage point. As the New Year and the Chinese Spring Festival approach and also fueled by Singles’ Day, China’s version of Black Friday, the consumer price index (CPI) rose by 1.5 percentage points over October and exceeded 53%. The equipment manufacturing PMI picked up slightly, which was originally above 52%. The high-tech industry PMI managed to stay above 53% for two consecutive months. The PMI of energy-intensive industries and those with excess production capacity increased somewhat and remained just above 50%.
Senior statistician Zhao Qinghe from the NBS Service Survey Center suggested that companies are still facing some challenges in their production and operation activities. For instance, the proportion of companies insisting the prices of raw materials and transport cost on the rise exceeded 30%, which was a new high since the past three years; the recent fierce fluctuation in RMB exchange rate and the increase in the cost of imported raw materials both exerted serious impact on computer & communications and other electronic equipment manufacturing sectors; the PMI of small businesses reported 47.4%, down 0.9 percentage point over previous month, and the continuing stay in the shrinking domain and the enlarged drop range indicated that small businesses had their production and operation notably worse than large and medium-sized firms.
Non-manufacturing sectors saw their new orders picking up remarkably.
In November, China’s non-manufacturing business activity index stood at 54.7%, up 0.7 percentage pint over previous month. Continuously expanded from last month, the rise had lasted for three consecutive months and hit the new high since July 2014. The performance of the index revealed that the non-manufacturing business activities secured a relatively fast growth in China.
In term of single indicators of the non-manufacturing PMI, indices including new orders, orders in hands, inventory, employees, delivery time of suppliers and business activity expectation all grew slightly month on month. Their rise ranged between 01-0.9 percentage points while other major remaining indicators declined from 0.1 percentage point to 0.5 percentage point month on month.
Vice Chairman Cai Jin from CFLP noted that the non-manufacturing business activity index continued to rise for three consecutive months in November. Among which, the new orders index picked up remarkably, suggesting the Chinese economy maintained a stably rapid growing trend.
From the perspective of service, the business activity index reported 53.7%, up 1.1 percentage points over previous month and hitting the high within the year. Boosted by such promotional events like the Single’s Day, sectors including wholesale and retailing, postal and express delivery, loading and unloading, and warehousing did brisk business, with the total business volume soaring.
The expectation for festival consumption would continue to grow as the year end comes close and the service sectors related with consumption will drive up the economic growth in a more prominent way, according to expert Wei Wu from China Logistics Information Center.
As manufacturing was gathering its pace in expansion, the related producer service sectors realized fast growth and their business activity index reached 61.1%, up 5.6 percentage points over previous month. Among which, the business activity index for such sectors as railway transport, water transport, internet, software and information technology service, monetary and financial service, capital market service, and insurance all stayed within a high-level range above 60.0%, revealing a robust momentum for expansion. The market demands of service sectors maintained an upward trend and the new orders index posted 51.2%, up 0.8 percentage points and above the expansion-contraction line for three consecutive months.
As Wu Wei pointed out, since the second half of 2016, the business activity index of commodity wholesale delivered a quite stable performance compared with the same period of previous years. The index remained at a comparatively high level and operated above 50% continuously. Its average from July and November rose by 1 percentage point over the same period of last year. The continuous stability in wholesale business suggested that purchase activities of companies have bordered up stabilization and production and operation kept growing rapidly.
With the advent of cold winter, the construction industry saw its production growth rate in the seasonal drop and its business activity index stood at 60.4%, down 1.4 percentage points over previous month but still within a prosperous range of high level. Seen from the market demand, the new orders index reported 55.1%, up 0.9 percentage point over previous month, which indicated that the construction sector was expected to continue its fast growth.
Despite the somewhat drop due to the slack season, the business activity index of the construction industry still managed to stay a comparatively high level—above 60% and its new orders index rose slightly compared with previous month. Therefore, the subsequent investment was expected to bear fruit continuously, said Wu Wei.
We cannot afford to ignore the mounting business cost.
“The continuous rise in the manufacturing PMI and non-manufacturing PMI suggests a definite sign that the Chinese economy has bottomed out from an overall perspective. The economic growth rate in Q4 is expected to be higher than 6.7%”, said chief economist Lian Ping from Bank of Communications.
Some experts from China Logistics Information Center also thought that seen form the trend of PMI and the feedback from the surveyed companies, the market demand was picking up, prices started to rise, and the operating rate of firms went up. The overall upward momentum would continue for another period of time. Generally speaking, the Chinese economy got better poised for picking up and showed more notable uptrend in Q4 of 2016. With major economic indicators performing satisfactorily, the annual economic growth is estimated to beat the expected target.
Nevertheless, the experts also noted that despite the overall stabilized and upward economic operation, particular attention shall be paid to such bad symptoms as the mounting business cost and the supply crunch of some energy and raw materials.
Shown by the data, since the second half of 2016, the purchasing price index of manufacturing continued to go up. Gathering pace, the rise in the recent two months both exceeded 5 percentage points, driving the index up to 68.3% in November. According to the survey findings, companies responded to the mounting prices of raw materials strongly. The proportion of firms struggling to deal with this problem kept climbing up for five consecutive months and it reached 36.4% in November, up more than 10 percentage points over October which was the peak since several years. As some companies said, the prices of coal, coke, and plastic raw materials (PP, PVC and PE), paper board and other products went up so fast that the cost pressure mounted. At the same time, the transport cost was also on the continuous rise. The accelerated cost rise swallowed up corporate profits, making companies in the worsening worry. Affected by this factor, the business activity index dropped slightly.
The proportion of firms struggling with the supply crunch of energy and raw materials went up faster in the recent three months. The number reached 8.7% in November, up 2.5 percentage point over previous month. According to the feedback of companies, the tight supply of coal, some chemical materials, pulp, and paper board had interfered with the normal production of some regions.
Besides, the index reflecting the delivery time of suppliers remained above 50% for much of the past period but it dropped below 50% in November, signaling suppliers had postponed their delivery. This could be attributed to the efforts of expressway authority to crack down overload, which impacted the logistics capacity in the short term. Additionally, as the environmental treatment efforts intensified, pulp and paper board fell short of supply periodically, thus influencing the packaging of delivered goods.
Seen from non-manufacturing sectors, as the real estate control policy produced effect gradually, the business activity index of the sector returned to a low level after a remarkable drop month on month and the new orders index and the sales price index both fell for two consecutive months. Considering the continuity of the macro-control policy, the real estate industry might enter into a period of adjustment.
“Since the purchasing price index of manufacturing continued its rise on an already high level, the too fast growth in prices of upstream products may be conducted to the downstream industries and increase the cost pressure of non-manufacturing companies. Therefore, continuous attention shall be paid to the change in the input price”, noted Wei Wu.