China's manufacturing conveyor belt is still humming along. Photo: iStock
China's manufacturing conveyor belt is still humming along. Photo: iStock

Manufacturing activity expanded in China last month but a tightening in monetary policy this year to curb “financial risks” will slow GDP growth.

The independent Caixin China General Manufacturing Purchasing Managers’ Index, or PMI, jumped to 51.5 in December, compared to 50.8 in the previous month.

Data released on Tuesday showed the fastest pace in growth for four months, underpinned by new orders, and illustrating the robust health of the world’s second-largest economy.

“Manufacturing operating conditions improved in December, reinforcing the notion that economic growth has stabilized in 2017 and has even performed better than expected,” said Zhong Zhengsheng, the director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin Insight Group.

On Sunday, the official manufacturing PMI came in at 51.6, a slight drop from the 51.8 figure in November, the National Bureau of Statistics revealed.

Still, the numbers remained comfortably above the 50-point mark that separates growth from contraction.

“The manufacturing sector is stable and improving, a trend that has become more entrenched,” Zhao Qinghe, a senior NBS statistician, said in a statement released to China Daily.

Last year’s annual average reading was 51.6, which was 1.3 points higher than in 2016. “The December reading dropped a little bit, but it still reached the annual average level, indicating that expansion of the manufacturing sector remains strong,” Zhao said.

In December, the World Bank raised its projection for China’s GDP growth for 2017 to 6.8%, up from its October estimate of 6.7%. It cited strong exports and robust domestic household consumption.

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But Zhong warned that “downward pressure” on growth this year will remain. “It will be due to tightening monetary policy and strengthening oversight on local government financing,” he said.

Analysts expect growth to slow in 2018 as the central government moves ahead with its supply-side structural reforms, including curbing capacity in state-owned enterprises.

This approach was mapped out by leading policymakers at last month’s annual Central Economic Work Conference chaired by President Xi Jinping. China’s financial brains trust reiterated that the focus would be on creating “high quality” growth, which would effect GDP.

The World Bank has predicted that Beijing’s decision to tighten monetary policy will trigger a fall in GDP growth to 6.4% this year and 6.3% in 2019.

Yet industries heavily involved in infrastructure projects and the Belt and Road Initiative, or the new Silk Roads spanning Africa, the Middle East, Asia and Europe, will help stimulate activity

“The construction sector has helped bolster the index, indicating that infrastructure investment remains stable, which will help boost overall economic growth in 2018,” Qu Qing, an analyst at Hua Chuang Securities, told China Daily.

Challenges, though, remain in the next 12 months.

The central bank governor, Zhou Xiaochuan, underlined in his New Year address that the “prudent monetary stance by the People’s Bank of China would remain.”

“Controlling the money supply was identified as a policy priority to tame asset bubbles and reduce debt levels,” the Central Economic Work Conference stated after its annual meeting.

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