China factory growth seen slowing slightly

29/11/2017 07:52 AST

Activity in China’s manufacturing sector likely grew at a slightly slower pace in November, a Reuters poll showed, as export orders softened and tough pollution measures forced many northern steel mills and factories to curb production.

But expansion is forecast to have remained solid amid still-strong demand for steel and other construction materials, and as mills in southern provinces with less stringent smog restrictions cranked up production to gain market share.

China’s war on air pollution is clouding the outlook for the world’s second-largest economy at the same time that global markets are fretting over Beijing’s campaign to curb excesses in the financial sector and a rapid build-up in debt.

The official manufacturing Purchasing Managers’ Index (PMI) on Thursday is expected to come in at 51.4 for November, down marginally from 51.6 in October, according to a median forecast of 28 economists polled by Reuters.

While activity is seen cooling for a second month, it would still mark the 16th straight month of expansion, supporting views that China’s manufacturing sector remains resilient despite a number of challenges. The 50-mark divides expansion from contraction on a monthly basis.

A recovery for China’s manufacturing and industrial firms - boosted by government spending, a resilient property market and unexpected strength in exports - has helped the economy post better-than-expected growth of nearly 6.9 per cent through the first nine months of this year.

Profits for China’s industrial powerhouses surged 25.1 per cent in October, down only slightly from September’s nearly six year high, as coal mining and other upstream sectors continued to benefit from strong commodity prices.

While the winter pollution curbs had been expected to dampen demand, resources prices have rallied this month on worries about supply shortages, keeping profit margins and production at robust levels.

The high-price trend has persisted, with domestic iron ore futures prices up over 13 per cent since the start of November, while coking coal has risen over 20 per cent.

Prices in the world’s largest steel consuming country will continue to remain strong in 2018 with supply and production becoming more balanced, an official from the China Iron and Steel Association (CISA) said last week, according to a report by the official Xinhua news agency.

Still, factory activity in the world’s second-largest economy is clearly moderating. After a near two-year tear in the real estate market, new construction starts and property sales have started falling due to a flurry of government measures to tame hot house prices. Beijing’s ongoing crackdown on riskier forms of financing is also slowly driving up borrowing costs, which is expected to weigh on investment and other business activity.

The Gulf Today