Manufacturing PMI Continues Expansion Trend
As the manufacturing sector shows signs of revival in November, the Purchasing Managers' Index (PMI) indicates an expansion with a slight increase of 0.2 percentage points to reach 50.3%. In contrast, the non-manufacturing PMI has experienced a minor decline, stabilizing at around the 50% mark. Overall, the economy continues to exhibit tendencies of recovery.
Firstly, both supply and demand have shown steady growth.
Thanks to the continuing effects of government policies, the market displays a steady uptrend in the supply and demand sectors. Notably, the new orders index has reached 50.8%, marking an increase of 0.8 percentage points from October and signifies the first expansion since May. Conversely, the new export orders index stands at 48.1%, remaining in the contraction zone but showing improvement with a rise of 0.8 percentage points compared to the previous month, indicating a degree of recovery in external demand.
It appears that domestic export companies are prioritizing their shipments, possibly due to concerns over potential tariffs being imposed by the United States. According to data released by the Ministry of Transportation, container throughput saw a significant rebound in the second week of November, with a month-on-month increase of 12.7%. Moreover, cargo throughput also demonstrated growth in the second and third weeks, registering increases of 3.8% and 2.7%, respectively. On the supply side, the production index reached 52.4%, a modest increase of 0.4 percentage points from the previous month, reflecting the persistence of expanded production willingness among businesses.
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This growth further spurred an uptick in both procurement and import indices, with the procurement index rising by 1.7 percentage points to 51% and the import index increasing by 0.3 percentage points to 47.3%.
Secondly, new growth drivers and consumer goods-related industries are performing well.
Industry-wise, high-tech manufacturing and consumer goods manufacturing have played significant roles in boosting market vitality. In November, the PMIs for high-tech manufacturing and consumer goods manufacturing were recorded at 51.2% and 50.8%, respectively, with increases of 1.1 and 1.3 percentage points month on month. Additionally, the equipment manufacturing PMI remains in a high expansion range at 51.3%. Factors such as significant equipment upgrades, the replacement of consumer goods, technological innovation, industrial upgrades, and the "rush to export" likely contribute to this trend.
Thirdly, price indices have receded.
The factory price index and the main raw material purchase price index were recorded at 47.7% and 49.8%, respectively, showing declines of 2.2 and 3.6 percentage points from the month prior. The substantial drop in the raw material price index aids middle and lower stream enterprises in enhancing their profit margins.
The possible reasons for this price decline could be twofold: Firstly, the imbalance in supply and demand still prevails. The PMI for small enterprises remains within the contraction zone, with over 60% of businesses reporting insufficient demand. Although both supply and demand have rebounded, the increase in finished goods inventory indicates that the demand side may not have met expectations. Secondly, the current global economic uncertainties, influenced by policy ambiguities, interest rate reduction expectations, and geopolitical risks, restrict the continued rebound of commodity prices.
Fourthly, non-manufacturing sector activity has declined.
The non-manufacturing new orders index decreased by 0.2 percentage points from last month to land at 50%. The features of insufficient demand are particularly prominent, with the indices for new orders, new export orders, and orders on hand dropping by 1.3, 1.8, and 1 percentage points, reaching 45.9%, 48.2%, and 42.7%, respectively. The construction industry's activity has also experienced a downturn due to seasonal factors, falling below 50% to 49.7%. Within this, the business activity indices for the housing and construction decoration sectors are both below 50%.
Currently, the real estate market transaction volumes are on the rise; however, this growth has yet to translate into price stability, and the sustainability of recovery within the sector requires further observation. The civil engineering construction activity index has seen a slight decline but remains in an expansion zone above 52%, signaling that infrastructure-related activities continue to exhibit robust growth.
With the ongoing expansion of the issuance of special government bonds and local government special bonds and an acceleration in their distribution, infrastructure investment is anticipated to quickly convert into actual work volume.
The service sector index remains stable compared to last month at 50.1%, with rises noted in both the business activity and sales price indices.
Fifthly, business expectations continue to improve, yet firms remain cautious regarding expansion investments.
Overall, both manufacturing and non-manufacturing sectors show an upward trajectory in their future production and business activity expectation indices. However, the employment index has not followed suit, instead showing month-to-month decline. The Business Condition Index (BCI) reflects a similar trend.
While the forward-looking indices for sales and profits indicate improvement, the forward-looking indices for investments and recruitment are seeing declines. This suggests that while confidence among companies has indeed improved, the persistent issue of insufficient demand leads them to adopt a watchful stance regarding investments and expansions.
Finally, to summarize, the manufacturing sector in November portrays an accelerating pace of expansion, with both supply and demand exhibiting signs of continued improvement. The construction industry finds itself in the traditional off-season, while the service sector continues its low-level recovery. However, external demand faces substantial pressure, small enterprises, despite improved conditions, remain below critical thresholds, and issues pertaining to price decreases and supply-demand imbalances persist.
In terms of business expectations, although improvements are noted, there remains a cautious outlook regarding investment expansions. Moving forward, attention should be given to the impacts of demand and price corrections on businesses' willingness to replenish stocks. We are currently in a policy lull period, with economic data indicating a wave-like recovery pattern. The market is now at a stage grappling with strong policy expectations against a backdrop of relatively weak fundamental realities.
In view of future market trajectories, during this policy hiatus, financial sentiment will continue to be a critical factor driving market dynamics, with the market likely to remain in a state of fluctuation. It is advisable to keep an eye on the upcoming Politburo meeting and the Central Economic Work Conference, as these events might provide new direction and opportunities for expected adjustments in the market.