Mainland last month, new manufacturing PMI contracted, trade and domestic demand weakened, 19 months fell below 50

Under the guise of the Sino-US trade war, the pressure on the manufacturing industry in the Mainland began to emerge. After the official manufacturing purchasing managers’ index (PMI) fell below the 50-year break-even line in December last year, the PMI trend of the new manufacturing industry, which also reflected the situation of SMEs, was also consistent. It recorded 49.7 in December and fell for the first time after May 2017. Under the comprehensive factors of trade war, property market cooling, and weak demand, the downward pressure on the economy has gradually increased.

New export orders fell for 9 months

In December last year, Caixin PMI recorded 49.7, which was lower than the market expectation of 50.1 and 50.2 in November. The official PMI announced earlier was 49.4, compared with 50 in November. Caixin pointed out that the manufacturing demand is sluggish, the total new orders have declined for the first time since July 2016, and the new order index has fallen below 50. Many respondents said that market demand is sluggish and sales are frustrated; new export orders are more continuous. It fell in 9 months, but the decline was narrower than in November. In terms of price, the manufacturer has lowered the price of the product for two consecutive months, and the input cost has fallen. The decline is the largest since February 2016. In order to reduce operating costs, the company no longer fills vacancies after the employees leave the company, and the manufacturing industry continues to shrink. The scale of manufacturing employment has been shrinking for 62 consecutive months.

Although the total number of new orders decreased, the purchasing activity of the manufacturers rebounded slightly in December, and the production rebounded for three consecutive months. The manufacturing output rebounded slightly, but the growth was much lower than the beginning of the year. Confidence in the manufacturing industry is still weak, but confidence in the business outlook for the next 12 months has slightly rebounded, but the historical data is still low, mainly worried about the weakening of demand and the tightening of production laws. Zhong Zhengsheng, chief economist of Caixin Think Tank, said that the decline in domestic demand in manufacturing and the suppression of external demand, the increase in corporate awareness of reducing stocks, the decline in prices of industrial products, the further delay in manufacturing production, and the further downward pressure on the economy.

Nomura: The worst case has not arrived

Zhou Hongli, senior economist of DBS Hong Kong’s economic research department, said that the PMI index fell below the 50-line boundary, and the Sino-US trade war was the biggest factor. As the manufacturing orders are booked 3 to 4 months earlier, the order is now empty and it is estimated that the PMI will continue to shrink in the coming months. He mentioned that in the 2018, the Mainland’s economic boosting activities were “overdraft” and “the 2018 should have been done in 2018.” Zhou Hongli believes that if the agreement between China and the United States can be reached after the negotiations in March, and the mainland’s monetary policy is reflected in the real economy, then the mainland economy will be able to see its bottom in the second half of the year in 2019. Conversely, if the negotiations have no substantive results, The economic downturn will continue to be delayed.

For the official manufacturing PMI fell below 50, Nomura believes that the weakening of domestic demand, the credit down cycle, the cooling of the property market, and the Sino-US trade war delay, “the worst situation has not yet arrived.”