China December Factory Activity Contracts More Than Expected

(Bloomberg) -- China's factory activity shrank for the third straight month, signaling persistent pressure on the economy from sluggish domestic and overseas demand.

The official manufacturing purchasing managers index declined to 49 in December, from 49.4 in November, the National Bureau of Statistics said in a statement on Sunday. Economists had expected a reading of 49.6.

A gauge of non-manufacturing activity — measuring construction and services sectors — rose to 50.4 from 50.2 in November. An underlying measure of services activity was unchanged from November at 49.3. Any reading above the 50 mark indicates an expansion from the previous month, while a figure below that denotes contraction.

China's economic recovery showed signs of weakness in the final months of the year, adding to worries over the growth outlook for 2024 even as Beijing signaled it will likely set an ambitious target for next year. Authorities recently vowed to adopt a pro-growth stance with fiscal and monetary policy in 2024, even while avoiding any hint of big stimulus.

Weak demand and sluggish confidence has also been reflected in deepening consumer price deflation and shrinking imports. The worst property downturn in modern China is expected to persist, which will further curb demand for goods from furniture to home appliances.

The official manufacturing PMI underperformed the results of a private survey by Caixin and S&P Global for several months this year. The Caixin PMIs, which cover mainly smaller and export-oriented businesses compared with the official PMI, will be released later this week. 

Some economists said the official survey may paint a more realistic picture of the economy, and the divergence could stem from relatively stronger performance of export-oriented firms.

A gauge of construction activity climbed to 56.9 from 55 in November, according to the NBS. Some analysts had expected construction momentum to remain robust as the government stepped up the effort to build more infrastructure projects with extra bond issuance. 

A sub-index for factories' new orders fell to 48.7 as demand weakened, while a gauge measuring new export orders contracted to 45.8.

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