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China's Manufacturing Sector Growth Moderates In December

(RTTNews) - China's manufacturing sector growth moderated at the end of 2019, reflecting a softer upturn in total new businesses, survey results from IHS Markit showed on Thursday.

The Caixin manufacturing Purchasing Managers' Index fell to 51.5 in December from 51.8 in November. Nonetheless, a score above 50 indicates expansion.

Although conditions strengthened in each of the past five months, the PMI reading was the lowest seen since September, the survey revealed.

The official PMI survey, released earlier this week, showed that the manufacturing sector expanded for the second straight month in December. The indicator held steady at 50.2 in December.

The new order growth slowed to a three-month low in December as export work increased only marginally, Markit noted. The sustained rise in new orders underpinned a further increase in production volumes.

Staffing levels were unchanged in December, as a number of firms mentioned efforts to contain costs and boost efficiency. Consequently, the level of outstanding business rose again, albeit at a weaker pace.

On the price front, data showed that the rate of input price inflation was marginal and much softer than the series average. However, the further increase in costs led companies to lift their selling prices for the first time since June.

Although manufacturers generally expect output to rise over the next year, concerns over ongoing trade tensions, environmental protection policies and intense market competition meant that overall sentiment remained weaker than the historical trend.

Subdued business confidence was a major factor behind the economic slowdown this year, Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group said.

"As the phase one trade deal between China and the U.S. has sent out positive signals, there is room for a recovery in business confidence, which should be able to help stabilize the economy," Zhong added.

The People's Bank of China, on Wednesday, reduced the amount of cash that banks should set aside as reserves to spur liquidity. The central bank lowered the reserve requirement ratio, or RRR, by 50 basis points.

The central bank said the RRR cut will release CNY 800 billion liquidity into the financial system.

The PBoC said the liquidity in the banking system will be kept stable.

Julian Evans-Pritchard, an economist at Capital Economics, said the RRR cut announced yesterday will ease liquidity conditions in the short-run but will need to be followed by further cuts to the PBOC's policy rates in order to result in a sustained decline in interbank rates.
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