Despite a slight improvement in factory activity in December, the sector is still contracting as South Korea blames China for 12th straight drop in exports

Trucks drive through a container depot at at Qingdao in eastern China’s Shandong province. China is heading for its weakest growth for 25 years.
Trucks drive through a container depot at at Qingdao in eastern China’s Shandong province. China is heading for its weakest growth for 25 years. Photograph: AP

China’s mighty manufacturing sector continued to shrink in December as the world’s number two economy heads for its worst annual growth for 25 years.

Although a gauge of Chinese factory activity ticked up last month, it continued to indicate contraction for a fifth straight month, official data showed on Friday.

The mild improvement follows a string of stimulus measures from Beijing, including six interest rate cuts in the year up to November as well as reductions in the amount of cash banks must keep in reserve, both intended to boost lending.

House prices, which have been a major drag on growth, appear to have benefited from the stimulus as well with a different set of figures showing a slight increase in new home prices last month. Prices rose 4.15% on an annual basis in China’s 100 biggest cities last month, according to the China Index Academy on Friday.

The official purchasing managers’ index (PMI) of manufacturing activity – which tracks activity in the factories and workshops sector – edged up to 49.7 in December from 49.6 registered the month before, which was a three-year low.

However, it was short of the 49.8 forecast in a poll of economists by Bloomberg. Anything below 50 is considered contraction and anything above is seen as growth.

“Although the PMI slightly rebounded this month, it still lies below the critical point and is lower than historic levels over the same period,” said Zhao Qinghe, senior statistician at the national bureau of statistics, in a statement on the bureau’s website.

The figures are the latest to highlight a continuing growth slowdown in the economy, which expanded 6.9% in July-September, the weakest rate since the 2009, during the global financial crisis.

Many analysts believe the actual increase was even lower, due to factors such as the weak PMI readings.

Another sign of China’s slowdown came from South Korea where exports fell for a 12th straight month in December, capping its worst yearly trade performance since the 2008-2009 global financial crisis. The government warned there was no quick turnaround in sight.

Low oil prices, slowdowns in China and other emerging economies and weakness in Europe sent global trade plunging this year, dealing a sharp blow to trade-reliant Asian countries which rely heavily on exports of manufactured goods such as petrochemicals and electronics.

South Korea’s exports in December fell 13.8% in dollar terms from a year earlier, while imports slumped 19.2%, the ministry of trade said on Friday, both lagging forecasts in a Reuters poll and weaker than declines of 4.8% and 17.6% in November.

In all, exports fell 7.9% in 2015 – the worst since a 13.9 percent decline in 2009 – but were expected to rise 2.1% in 2016, the ministry said, while adding there were downside risks to the forecast.

“Sluggish growth in China, sustained low oil prices and stunted growth in emerging economies due to higher rates in the U.S. pose risks to exports this year,” the ministry said in a statement.

[Source:-the gurdian]

By Adam