China's manufacturing PMI falls to 49 in December 2022: Caixin

While output in December 2022 fell at a softer rate compared to November 2022, total new orders fell at a quicker pace as firms cited relatively weak market conditions. As a result, companies cut back on purchasing activity and reduced their headcounts further.

Encouragingly, business confidence around the 12-month outlook for output improved to the highest since February. Inflationary pressures meanwhile remained muted, as input costs rose modestly, and prices charged fell slightly, according to the Caixin China General Manufacturing PMI report.

Weighing on the headline index was a quicker fall in overall new business during December. Though modest, the latest reduction in sales was the fastest seen for three months, with companies citing relatively weak demand conditions amid the ongoing pandemic. Foreign demand for Chinese manufactured goods also fell, and at a quicker pace than in November. Lower amount of export work was often blamed on sluggish global economic conditions and the pandemic.

COVID-19 containment measures, including temporary factory closures, combined with softer customer demand to drive a further fall in manufacturing production at the end of the fourth quarter. The pace of contraction was the softest for four months and mild, however, with some firms noting a relative improvement in their operations compared to November.

In line with the trend observed for new orders, companies trimmed their purchasing activity at a quicker pace during December. Notably, the rate of decline was the strongest seen since April. At the same time, inventories of both purchased items and finished goods fell further.

Logistics sector continued to be affected by the ongoing implementation of COVID-19 containment measures, with suppliers’ delivery times lengthening for the sixth month running. Though not as severe as that seen in November, the rate of deterioration was nonetheless solid overall.

A further fall in employment was observed due to lower production requirements and difficulties sourcing workers because of pandemic-related disruption. The rate of reduction was only fractionally slower than November's 33-month record. Firms signalled little pressure on capacity though, as backlogs of work fell slightly for the third time in four months.

On the costs front, average input prices rose only slightly in December, with some firms noting an increase in expenses for some materials (notably metals). However, firms continued to lower their selling prices slightly as part of efforts to boost competitiveness and gain new business.

In terms of the year-ahead outlook for production, Chinese manufacturers expressed stronger optimism in December. The level of positive sentiment improved to the highest for ten months, with companies often anticipating output to increase as the pandemic situation improves and market conditions strengthen.

Fibre2Fashion News Desk (DP)