Growth in China’s manufacturing sector slowed for the first time in six months in December, dragged down by weak demand for Chinese exports, according to an official purchasing manager’s index.
The state-sponsored PMI fell to 51 in December, down from 51.4 in November, marking a four-month low and highlighting the challenges facing the ruling Communist party as it tries to transform the growth model in the world’s second-largest economy.
“From the overall situation we can predict that the future industrial growth rate will decline, the export growth rate may drop and economic growth is still under downward pressure,” said economist Zhang Liqun in a statement accompanying the release of the PMI index.
An index reading above 50 indicates expansion in the manufacturing sector while a result below 50 marks contraction.
December’s reading shows that Chinese manufacturing as a whole is still growing but in the crucial export sector producers saw a contraction last month for the first time since July.
The survey showed that new export orders contracted in December with the export sub-index coming in at 49.8, compared with November’s 50.6. That was the first contraction in export orders since July.
Slowing demand from abroad comes as Beijing embarks on a series of complex and difficult reforms in an attempt to shift the Chinese growth model away from exports, credit-fuelled investment and construction of infrastructure and real estate.
The plan is to encourage consumption and a more environmentally friendly, service-oriented economy.
But the government also hopes to maintain relatively high rates of growth in order to cushion the impact of wrenching change as it seeks to make China’s economy more balanced and sustainable.
In his first new year’s address to the nation as president on Wednesday, Xi Jinping stressed the need for ongoing reforms in order to make China “rich and strong”.
Growth rates have gradually declined in recent years and last week China’s cabinet predicted the economy would expand 7.6 per cent this year from last year, the slowest rate since 1999, when the economy also grew 7.6 per cent.
If the slowdown continues next year and growth drops below 7.6 per cent it will be the slowest since 1990 when China faced international sanctions in the wake of the Tiananmen massacre.
Apart from concerns about potential weakness in the manufacturing sector, Beijing has to contend with a steep rise in debt built up by state enterprises and local governments since the 2008 global financial crisis.
The explosion in credit has fuelled a construction and real estate boom across the country that many analysts fear would cause a sharp slowdown if it were to come to an abrupt halt.
The burgeoning debt load has also created stresses in the country’s money markets, with liquidity shortages leading to spikes in interbank lending rates in June and again in recent weeks.
China’s central planning agency pledged this week to rein in the “disorderly expansion” of debt, particularly at the local government level, where a national audit published this week showed there has been a rapid expansion in borrowing in the past two years.