Factory activity improves further in China

Manufacturers saw “improved market conditions and greater client spending" during the final month of 2023.

The overall health of China’s manufacturing sector improved further in December on the back of a sustained recovery in production and new orders.

The headline Caixin/S&P China general manufacturing purchasing managers’ index (PMI) rose by a notch to 50.8 last month from 50.7 in November, indicating two straight months of modest improvement in Chinese factories.

December’s reading also marked the fourth time the sector recorded improving conditions in the past five months, whenever PMI breaches the 50 neutral mark that separates expansion from contraction.

Supporting last month’s uptick were higher new orders which helped push overall sales to rise at its fastest pace since February 2023. Manufacturers polled in the survey cited “improved market conditions and greater client spending” as the major driver of sales last month, with the rate of decline in export orders slowing to the weakest rate in six months.

Companies also continued to increase their production for the second month running to keep up with higher orders, although they remain cautious with their purchasing activity. A number of firms opted to use existing stocks instead to reduce costs, according to the survey.

Employment also continued to fall for the fourth straight month in December as demand remains subdued despite the mild recovery towards the end of 2023.

For this year, Chinese factories were still optimistic production will continue to expand throughout 2024 in hopes of improved global demand, higher client spending and new product
investments.

“Domestic and external demand is still insufficient, and the foundation for a positive economic recovery needs to be consolidated,” said Wang Zhe, senior economist at Caixin Insight Group. “There is still room for adjustments in fiscal and monetary policies. Efforts in increasing employment should be strengthened to alleviate pressure on the job market, improve people’s livelihoods, and ultimately foster long-term market confidence.”

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