BEIJING, Jan. 4 (Reuters) – China’s factory activity rose in December as the world’s second-largest economy sustained its recovery to pre-pandemic levels, a poll showed on Monday but increasing cost pressures have slowed the pace of expansion.
The Caixin / Markit Purchasing Managers’ Index (PMI) fell to 53.0 from 54.9 in November, with the gauge remaining well above the 50 level, which separates the contraction increase but lacks expectations and fell at the slowest pace in the last three months.
Analysts polled by Reuters predicted that the reading of the title would fall to 54.8.
China’s large industrial sector has made an impressive recovery from the coronavirus shock due to surprisingly strong exports. The economy is expected to expand by around 2% for the whole of 2020 – the slowest pace in three decades, but much stronger than other major economies that are still struggling to contain infections.
However, stricter coronavirus control measures in many of its key western trading partners could affect industrial demand, influencing the recovery.
The reading of the Caixin PMI comes after an official indicator of the factory’s activity, focusing more on the larger and state-owned companies, which are also moderate, but remained strong.
“The negative impact of the pandemic on the domestic economy has diminished and the manufacturing industry has continued to recover. Both demand and supply continued to improve. Overseas demand has also been steadily rising, “said Wang Zhe, a senior economist at Caixin Insight Group, in a note accompanying the survey’s statement.
The private sector survey also showed that entry prices rose sharply, at the fastest pace since 2017, with more expensive raw materials, especially metals, being blamed for the rise. Chinese factories also laid off more workers than they first hired in four months, although the decline was modest.
“We need to pay attention to the increasing pressure on costs brought by rising commodity prices and its negative impact on employment, which is particularly important for projecting exit from the stimulus policies implemented during the epidemic,” Wang said.
Indicators for both new total orders and factory production fell from November, but remained strong. The growth of new export orders has also slowed.
“We expect the post-epidemic economic recovery to continue for several months, and macroeconomic indicators will be stronger in the next six months, given the low base in the first half of 2020,” Wang said. (Reporting by Gabriel Crossley; Editing by Sam Holmes)