China's factory activity expanded in December on the back of easing pressure on raw material prices. However, the labor market contraction and fragile business sentiment still cause uncertainty.
On Tuesday (04/January), China's National Bureau of Statistics released data on the Caixin Manufacturing PMI which rose from 49.9 to 50.9 in December. This figure is considered positive because it marks the return of manufacturing activity to the expansion path, as well as incised growth at the fastest pace in the last six months.
Moon China Manufacturing Activity
China's small-medium scale manufacturing sector posted quite an impressive gain during December, driven by higher production in line with the recovery in domestic market demand. In addition, the reduced pressure on raw material prices has also sparked the development of China's industrial sector.
"Supply is strong and market demand is rebounding. With supply constraints easing, manufacturing output increased for the second month in a row at a faster pace," said Wang Zhe, senior economist at Caixin Insight Group.
However, the labor market and weak business confidence still leave uncertainty among business players. The survey further showed that the new export orders sub-index declined, as did the labor market, which contracted to a record low since February 2021. This caused the manufacturing index to only post limited gains.
"The labor market which is still under pressure and business sentiment that looks not so good indicates that China's economic recovery is currently unstable. Repeated pandemics and sluggish overseas demand are factors that trigger instability… Policymakers must focus on recovery efforts jobs for small and medium-sized businesses," added Wang Zhe.
China's economy has been experiencing a slowdown since early summer last year after making a quick recovery from the effects of the pandemic. Some analysts expect China's GDP to grow below 4.0 percent in the fourth quarter of 2021, a sharp decline from double-digit figures in the first and second quarters.
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