China’s manufacturing activity
According to the Caixin/Markit manufacturing PMI, China’s manufacturing activity in December contracted for the first time in 19 months. The PMI value for December was 49.7—compared to 50.2 in November. The consensus, as compiled by Reuters, expected the PMI to come in at 50.1. The value of 50 separates the contraction from expansion. Values above 50 indicate an expansion, while values below 50 indicate a contraction.
According to the survey, domestic and export orders continued to weaken. New orders and new export orders contracted. Ongoing trade uncertainty between the US (SPY) (IVV) and China (FXI) contributed to the weak growth. Apart from the trade conflict, domestic headwinds are also impacting China’s economy.
The world is closely watching China’s economic data for signs of a slowdown. The weakness in China’s economic activity is fueling concerns about a slowdown in the global economic activity. Disappointing data from China fueled the sell-off in Asian markets. US futures are also pointing to a lower start in 2019.
New data point
Every new data point out of China seems to confirm the market’s concerns about the slowdown in China. The data for China’s industrial profits were released on December 27. The data showed the first contraction in profits for industrial companies since December 2015. The profits fell 1.8% YoY (year-over-year) to 594.8 billion Chinese yuan in December. The November trade data showed that exports and imports have been growing less than expected. China’s November car sales data, which were released on December 11, showed a 14% YoY fall in sales.
Strong measures are needed
The data points signal that China’s slowdown is deepening. China might need interest rate cuts, policy support from the government, and firmer credit growth policies to weather the weakness. China would likely benefit from resolving its trade differences with the US (DIA) (VTI) sooner rather than later to get its economy back on track.
To learn how the trade war is impacting China, read Why China Needs More Than a Trade War Truce to Buck the Slowdown.