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China’s manufacturing activity contracted for the fourth straight month in January, despite efforts by policymakers to boost confidence in the economic recovery, as the world’s second-largest economy lost momentum at the start of the year. It reflects that he was slow.
The country’s official Manufacturing Purchasing Managers’ Business Index was released on Wednesday at 49.2, in line with the median estimate of analysts polled by Reuters and slightly up from 49 in December. A number below 50 indicates a contraction from the previous month.
The National Bureau of Statistics (NBS) said the non-manufacturing index, which covers services and construction, rose 0.3 points from last month to 50.7, marking the highest level since September and showing “steady expansion.”
But analysts said the figures showed that a long-term real estate slump, weak export demand and weak investor and consumer confidence continued to weigh on China’s economy.
“Economic momentum remains weak as deflationary pressures persist,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
On Wednesday, Hong Kong also reported weaker-than-expected economic growth, with official figures showing the region’s gross domestic product (GDP) will rise by 3.3% in 2023 due to a slowing Chinese economy, falling merchandise exports and rising U.S. interest rates. It expanded by 2%.
China announced a series of measures to support its economy, especially credit enhancements to stimulate the real estate sector, infrastructure construction and other strategic sectors.
Gross domestic product (GDP) grew by 5.2% last year, above the official target of 5%, but the figure was outweighed by a low base effect from the year before, when lockdowns due to the coronavirus pandemic hit the country. .
The IMF says China’s stimulus, including fiscal investment in disaster relief, will improve this year’s outlook, and on Tuesday the multilateral financial institution raised its 2024 growth forecast to 4.6% from 4.2% in October. Ta.
“This upgrade reflects continued stronger-than-expected growth in 2023 and increased government spending to build capacity against natural disasters,” the IMF said in its World Economic Outlook.
Chinese stocks edged lower after recent weak indicators on China’s factory activity, with the CSI300 index down 0.2% and Hong Kong’s Hang Seng Chinese Enterprise Index down 1.3%. The gauges are down about 6 percent and 10 percent, respectively, this year.
China’s NBS reported that while major manufacturers reported an increase in activity in January, small and medium-sized enterprises continued to be in the realm of contraction.
In the non-manufacturing industry, construction activity continued to expand, but growth slowed significantly, while the service industry returned to positive territory after contracting for the first time in two months.
The composite index for manufacturing and non-manufacturing was 50.9, up 0.6 from the previous month, “indicating that the overall production and operational activities of domestic enterprises continue to expand,” NBS said.
HSBC wrote in a research note that one bright spot was the acceleration in production activity, which may reflect an improvement in domestic demand, which has so far been a persistent weakness in the post-pandemic economic recovery. ing.
The government is expected to set an economic growth target of 5% for 2024 at the Rubber Stamp Parliament’s annual general meeting in March.
But HSBC warned that more stimulus would be needed to reach that target. “We continue to believe that continued policy support is needed on multiple fronts, particularly fiscal, to boost growth and restore confidence.”
Pinpoint’s Zhang noted that while China’s fiscal policy stance has become more aggressive since late last year, “the transmission to the economy has been slow,” perhaps reflecting a “lack of appropriate infrastructure projects.” He pointed out that he was doing so.
The government has been reluctant to impose fiscal subsidies to directly boost consumption, and although the central bank has reduced the level of reserves that the Reserve Bank must hold to stimulate demand, deflationary pressures have led to Interest rates remain high, discouraging investors.
Zhang added that the People’s Bank of China is expected to follow suit with a rate cut in the first half of 2024.
Additional coverage of Chan Ho-him in Hong Kong