Manufacturing Activity In China Slows In December 2016

China manufacturing PMI

Manufacturing activity in China dipped slightly in December as measured by the country’s official manufacturing PMI (purchasing managers’ index). The indicator, published by the National Bureau of Statistics of China, showed that it fell to 51.4% in December compared with a reading of 51.7% in November.

A reading above 50% indicates an expansion in activity while one below signals contraction. The reading for December manufacturing PMI showed that although manufacturing activity in China continued to expand, its pace slowed from the previous month.

The expansion in December was the fifth successive month after the last contraction was witnessed in July 2016.

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The primary reason for a slowdown was the impact of measures taken by the government to put a lid on accelerating asset prices.

PMI at the enterprise level

Large-sized enterprises continued to hold the overall PMI up, with their PMI coming in at 53.2% in December. On the other hand, medium and small-sized enterprises continued to display contraction in manufacturing activity. While the PMI for medium-sized enterprises stood at 49.6%, that for small-sized enterprises stood at 47.2%.

Performance of sub-indices

The following five sub-indices (with weights) comprise the manufacturing PMI:

  • production index (25%)
  • new orders index (30%)
  • raw materials inventory index (10%)
  • employment index (20%)
  • supplier delivery time index (15%)

Among the aforementioned sub-indices those for production and new orders showed expansion, while those for raw materials inventory and employment contracted in December. The index for supplier delivery time was neutral at 50%.

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The production index was down 0.6 percentage points from November at 53.3% while the new orders index was unchanged at 53.2%. Employment in the manufacturing sector not only continued to decline, but its pace actually quickened in December.

Impact on China’s equities

Manufacturing activity in China has received a shot in the arm due to a housing boom in the latter half of 2016. Coupled with government spending on infrastructure, it has provided a fillip to several industries involved in the manufacturing process.

This expansion in manufacturing activity can be beneficial to China-focused mutual funds like the Oberweis China Opportunities Fund (OBCHX) and the Matthews China Fund – Investor Class (MCHFX), which have sizable exposure to the industrials sector compared to ETFs such as (FXI).

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