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Chinese Manufacturing Contracted for 10th Straight Month in December

Weighed down by weak demand at home and abroad, Chinese manufacturing activity withered yet again in December.

According to the Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI), published Monday, the country experienced its 10th straight month below the 50 mark as operating conditions faced by manufacturers went from bad to worse.

At 48.2, the reading was down from November’s 48.6 (anything under 50 indicates contraction as opposed to growth). The data also revealed that new work from overseas had declined for the first time since September. Domestic demand was soft, too.

“Lower output requirements underpinned a further fall in purchasing activity in December,” the report said. “Moreover, the rate of contraction quickened slightly since November and was marked overall. As a result, stocks of inputs also declined over the month, while fewer sales led to a slight accumulation of stocks of finished goods.”

Thus, manufacturers continued to cut staff and reduce their purchasing activity as part of cost-saving initiatives. Deflationary pressures persisted, meanwhile, as highlighted by decreased input costs and lower raw material prices.

“This shows that the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening,” He Fan, chief economist at Caixin Insight Group, explained. “More fluctuations in global markets are expected now that the U.S. Federal Reserve has started raising interest rates. The government needs to pay more attention to external risk factors in the short term and fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff. It needs to simultaneously push forward the supply-side reform to release its potential and reap the benefits.”

The Caixin-sponsored report is based on a private survey of purchasing executives in more than 420 small- and medium-sized manufacturing companies. By comparison, the Chinese government’s official PMI released Friday showed that manufacturing activity fell for the fifth straight month to 49.7.