2018.01.0201:43:00UTC+00China Factory Activity Growth Accelerates On Output, Orders

China's manufacturing activity growth accelerated at the end of 2017, driven by robust output and new orders, survey data published by IHS Markit showed Tuesday.

The Caixin Purchasing Managers' Index rose to 51.5 in December from 50.8 in November. A reading above 50 suggests expansion in the sector. This was the fastest growth in four months and above the expectations of 50.7.

Production growth improved to a three-month high on better sales and stronger underlying demand. Moreover, new orders grew at the steepest pace since August as exports advanced at the end of 2017.

Despite stronger increases in output and new work, manufacturers continued to shed staff in December. That said, the rate of job losses was the weakest seen for nine months.

The survey showed that average input costs continued to rise sharply despite the rate softening to a four-month low. Consequently, firms increased their selling prices notably.

Sentiment towards the 12-month business outlook picked up slightly from November's joint-record low, but remained well below the historical series average.

"Manufacturing operating conditions improved in December, reinforcing the notion that economic growth has stabilized in 2017 and has even performed better than expected," Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, said.

"However, we should not underestimate downward pressure on growth next year due to tightening monetary policy and strengthening oversight on local government financing."

According to an official survey, the factory PMI dropped slightly to 51.6 in December from 51.8 in November. Meanwhile, the non-manufacturing PMI rose moderately to 55.0 from 54.8 a month ago.

Both PMIs appear to have overstated the strength of the economy recently, Julian Evans-Pritchard, a senior China economist at Capital Economics, said.

Looking ahead, the economist expects further weakness in the coming quarters as tighter monetary conditions continue to weigh on economic activity.

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