China reports fifth month of weaker manufacturing

China's first official economic report of the year suggested manufacturing weakened for a fifth straight month in December, the longest such streak since 2009.

The purchasing managers index edged up to 49.7 last month from a three-year low of 49.6 in November, the National Bureau of Statistics said Friday. That compared with a median estimate of 49.8 in a survey of economists.

The non-manufacturing PMI, meanwhile, rose to 54.4, the highest since August 2014. Numbers below 50 indicate deterioration.

The slight improvement in the country's sluggish manufacturing sector follows stepped-up stimulus including six People's Bank of China interest-rate cuts. Policymakers trying to meet Premier Li Keqiang's goal of about 7 per cent growth this year are also facing pressure from employment, which has been steady thanks to a resilient services sector.

Economists said the continued contraction portends more monetary and fiscal support.

"Growth momentum is stabilising somewhat, however, as the index remained below 50 for five consecutive months, the manufacturing sector is still facing strong headwinds," said Zhou Hao, an economist at Commerzbank in Singapore.

“Monetary policy will remain accommodative and fiscal policy will be more proactive.”

While the manufacturing PMI showed improvement on both the supply and demand sides, downward pressure remains significant for the sector, the statistics bureau said in a statement released with the data.

Some manufacturers’ operations were affected by the decline in crude oil prices, continuous drops in the wholesale and raw material purchase price indexes, as well as tightening liquidity at the end of the year, according to the NBS.

"The improvement in the index suggests growth momentum has continued to stabilise, in part due to the government's stimulus efforts," Fielding Chen, an economist at Bloomberg Intelligence in Hong Kong, wrote in a note. "Nevertheless, another reading below the 50 threshold that separates expansion and contraction suggests the economy stays broadly weak."

The stabilization suggests that while the government is likely to achieve its 2015 growth target, “the economy remains broadly weak with substantial downside risks”, and top officials have already signalled their intention to implement more accommodative policies in 2016, Mr Chen said.

The increase in December lifted the manufacturing gauge from the lowest level since August 2012 and brought the average reading for 2015 to 49.9, which is below the 50.7 average for the past five years.

Last year’s PMI high of 50.2 in May and June was about the same as the lowest levels for all of 2013 and 2014.

Some gauges of manufacturing showed more positive signs. Output increased to 52.2 from 51.9 in the prior month, while new orders were 50.2, up from 49.8 in November, the NBS report showed. The employment sub-index decreased slightly, which signals the government may ramp up spending to preserve industrial jobs, according to China International Capital Corp.

On the services side, Friday’s PMI release showed new orders climbed to 51.7, the highest since May 2014, from 50.2. Employment picked up, as did a gauge of prices charged.– Bloomberg