Reduced Trade Tensions Lift China’s Factory Production

Date: Wednesday, January 1, 2020
Source: The Wall Street Journal

Demand for Chinese goods is up after Washington and Beijing struck an initial trade deal

BEIJING—Easing U.S.-China trade tensions lifted demand for Chinese goods and boosted factory production in December, an official gauge of manufacturing activity showed on Tuesday.

The official manufacturing purchasing managers index remained unchanged at 50.2 in December, indicating an expansion of activity for the second straight month after showing contractions for six months, the National Bureau of Statistics said Tuesday.

Factory production accelerated in December, while new export orders rebounded strongly to expansion after staying in contraction territory for more than a year, indicating an improved external demand for Chinese goods.

Trade talks between the U.S. and China made a tentative breakthrough when the two sides announced an initial trade deal in December. Beijing promised to purchase more American products, and Washington canceled plans for fresh rounds of tariffs while reducing some existing ones.

The key gauge of manufacturing activity was above the 50 mark, which separates expansion from contraction, and beat the 50.0 median forecast from a Wall Street Journal poll of economists.

The Chinese government has exempted some agricultural products such as soybeans and pork from higher tariffs.

Larry Hu, an economist at Macquarie Group, said that although the data confirmed that economic growth rebounded, the slowdown would probably continue without strong government stimulus.

A raft of economic data, including industrial production and retail sales, showed signs of improvement in November. Nomura economist Lu Ting raised his forecast for China’s economic growth in the fourth quarter to 6.0% from 5.8%.

“The extended strength in the official manufacturing PMI certainly looks positive for markets, but we believe this may not be sustainable, and the economy has yet to hit the bottom,” Mr. Lu said in a note Tuesday.

China’s official nonmanufacturing PMI, a measure of activity outside factory gates, fell to 53.5 in December from 54.4 in November, with activity in the service and construction sectors cooling.

Business in wholesale, road shipping, catering and real estate decelerated for the month, the statistics bureau said.

A resilient property market, which helped drive China’s economic growth in 2019, will probably start cooling in 2020, Mr. Hu said, citing slowing land sales that point to tepid property investment next year and adding that rapidly rising household debt is set to limit demand further.

The Chinese economy’s growth slowed to 6% in the third quarter, landing right on the low end of the government’s target. China’s Premier Li Keqiang said the Chinese economy could face bigger downward pressure in 2020 and pledged to lower financing costs for small businesses by cutting the reserve requirement ratio again.

Economists widely expected Beijing to lower its growth target to around 6% in 2020, down from this year’s range of 6% to 6.5%.

Over the weekend, China’s central bank ordered the nation’s commercial banks to start using new benchmark rates to price their loans at the start of 2020, a move expected to lower borrowing costs for business.


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