Mixed manufacturing activity numbers for China in November imply that additional stimulus would be needed to support economic development, economists said on Friday, as two surveys reached opposing conclusions about the sector's health.
Due to an unhealthy property market, local government debt problems, and poor global growth, China's economy has struggled to mount a significant post-COVID rebound. This has put pressure on factory owners, who have had to deal with high input costs, overcapacity, tepid demand, and policymakers putting other sections of the economy first.
The Caixin/S&P Global Manufacturing Purchasing Managers' Index (PMI) surprisingly increased in November to 50.7 from 49.5 in October. This was the fastest growth in three months, but it contrasted with the official PMI, which slipped to 49.4 on Thursday. Growth and contraction are separated by 50 points.
"At face value, the average of the two is consistent with factory activity remaining largely unchanged last month," said Capital Economics' China analyst Sheana Yue. "But that may not be the case in practise - the hard data have held up better than survey-based measures lately."
The samples for the official and Caixin surveys differ, with the Caixin PMI focusing on export-oriented industries and small and medium-sized businesses in the country's coastline region. "The economy is running at different speeds across industries, though we expect the policy stance to remain proactive which will help to sustain overall growth momentum into the coming quarters," a statement from HSBC on Thursday read.
The Caixin survey data was reinforced by the fastest increase in new orders received by Chinese goods producers since June in November, while new orders contracted in the official survey.
The official survey has contracted seven of the last eight months, although the Caixin survey has been more volatile, dipping in and out of contraction three times during the same time span.
The official index was last negative for more than three months in the six months to October 2019, indicating that pessimism has become entrenched among some factory owners.
"I don't think there can be a fix," Dan Wang, chief economist at Hang Seng Bank China, said on Thursday, warning that manufacturing activity was unlikely to increase anytime soon due to other economic concerns.
"The priority now is clearly containing the local government debt risk and the risk posed by regional banks."
Consumer prices in China fell in October, as key indicators of domestic demand revealed weakness not seen since the epidemic, and factory-gate deflation increased.
On Thursday, Chinese President Xi Jinping visited the Yangtze River Delt region, a recognition to the need to increase assistance for industry. He advocated for more integration across the enormous industrial region, which includes many major towns with populations in the millions, as well as China's largest port in Shanghai.
However, sluggish external demand remained a major factor influencing factory activity in both surveys, with the new export index in the Caixin survey reporting 49.0 and declining for the fifth straight month in November, and 46.8 in the official one.
Payroll losses in the sector continued for the third month in a row, according to the Caixin survey, and for the ninth month in a row, according to the official PMI.