China’s factory activity expands on export order boost

BEIJING (Reuters) – China’s factory activity expanded in January thanks to stable growth in output, quicker logistics and the first rise in new export orders since June, helping lift business confidence to a nine-month high, a private-sector survey showed on Thursday.

The positive outturn, however, contrasted with an official survey on the previous day showing manufacturing activity contracted again last month due to persistently weak demand.

Taken together, they point to a still-underperforming economy in need of more policy support.

The Caixin/S&P Global manufacturing PMI stayed at 50.8 in January, unchanged from December and surpassing analysts’ forecasts of 50.6. The 50-point mark separates growth from contraction.

“Quicker logistics, increased procurement, and rising inventories reflected improved business confidence,” said Wang Zhe, senior economist at Caixin Insight Group.

However, he noted that employment remained in contraction, price levels were subdued and “deflationary pressures persisted.”

Policymakers in China face a daunting task as they try to revitalise the economy in the face of a property downturn, local government debt risks, deflationary pressures and tepid overseas demand.

The crisis-hit property sector was dealt a fresh blow this week after a Hong Kong court ordered the liquidation of the debt-laden developer China Evergrande (HK:) Group.

But the Caixin survey offered some hope that external demand may be starting to improve with new export orders increasing for the first time since June last year, though marginally.

The export index may have been affected by the Lunar New Year which will fall on Feb. 10 this year, as factories and workers geared up for the pre-holiday shipment of goods.

Moreover, forecasts of stronger global demand, planned investment, new product release and efforts to expand into new markets drove manufactures’ confidence to their highest since April last year.

But factories continued to trim their workforce in January, while efforts to attract and secure new orders prompted them to cut product selling prices.

Heightened deflationary pressures have raised investor bets for further monetary easing after China announced a deep cut to bank reserves last week to support the economy and a plunging stock market.