China factory growth slower but resilient at end of 2013

Written by Reuters | Beijing | Updated: Jan 2 2014, 16:04pm hrs
Growth in Chinas factories slowed slightly in December as export orders and output weakened, official data showed on Wednesday, adding to views that while the worlds second-largest economy remains resilient, it lost some steam in late 2013.

The official Purchasing Managers Index (PMI), published by the National Bureau of Statistics, dipped to 51.0 in December. Economists polled by Reuters had expected the PMI to ease to 51.2 from Novembers 51.4. The 50-point mark separates an expansion in activity from a contraction.

Many economists have said Chinas economy was likely to show weaker momentum in the final three months of 2013 after a rebound between July and September, due to slowing credit growth and a fall-off in restocking demand.

Both domestic and overseas demand was weaker than expected. Domestically, tight liquidity is weighing on factory output and orders, said Li Heng, an economist at Minsheng Securities in Beijing.

The economy is under some under downward pressures but the slowdown remains modest. We still need to observe on the trend next year. We think Q4 GDP growth should be 7.7% and the same for Q1 2014, he said, adding that he saw economic growth for 2014 at around 7.5%.

The government has said industrial output may have grown 9.8% in 2013, and economic growth could come in at 7.6%, just above the official target of 7.5% and slightly below the 7.7% pace in 2012.

Sources at top government think tanks told Reuters this week that the government would likely set a 7.5% growth target for this year. The PMI survey showed new export orders contracted in December for the first time since July, with the sub-index at 49.8 from Novembers 50.6, pointing to weakness in overseas demand.

Manufacturing employment contracted further in December, with the sub-index falling to 48.7 from Novembers 49.6. The decline in the December PMI points to some slowdown in economic growth, said Zhang Liqun, an economist at the Development Research Centre, which helps compile the PMI.

Industrial output growth is likely to slow in the future and export growth could also ease, showing the economy still faces some downward pressure, he said.

The official PMI broadly mirrors a preliminary PMI survey released in mid-December by HSBC and Markit Economics, which showed factory sector activity grew at the slowest pace in three months due to subdued output. The final HSBC/Markit PMI is due on Thursday, at 9.45 am local time. It is more weighted towards smaller and private companies than the official one, which contains more large and state-owned firms.