Economy

China's Growth Turns Hot Again With Best PMI Result in 4 Years

Douglas A. McIntyre

Published: January 3, 2017 6:15 am

Last Updated: January 12, 2020 4:14 pm

China’s purchasing manufacturers’ index (PMI) took an unexpected jump in December, a sign that its economy may be not be slowing as much as expected. Various estimates put its gross domestic product (GDP) forecast between 6% and 7% next year. While that number is the envy of every other large nation in the world, by past standards it is slow.

According to the Caixin PMI measurement for December:

Manufacturing companies in China reported the strongest upturn in operating conditions since January 2013 at the end of 2016. Production expanded at the fastest pace in nearly six years, supported by a solid increase in total new work. As a result, companies raised their purchasing activity at a quicker rate than in November, which led to a renewed increase in stocks of inputs. However, employment continued to decline, as companies made efforts to reduce their costs. Nonetheless, input price inflation picked up to its sharpest since early 2011 amid reports of higher raw material costs, which prompted firms to raise their selling prices at a marked rate.

The primary index figure was 51.9, up from 50.9 in November. Any number above 50 signals expansion.

The second piece of information in the announcement should create some anxiety about consumer spending, which has increased as an engine of China’s GDP. While it is not over two-thirds of the economy as it is in the United States, the growing Chinese middle class has created a demand for goods and services that did not exist a decade ago. Any slowdown in this transformation in the People’s Republic’s economy will be hard to replace, even if global demand for China’s goods grows based on a stronger global economy in 2017.

Overall, however, the PMI figure at 51.9 is good. China’s factories have been a primary source of its export machine, which has supplied low-priced goods, particularly to the developed world. With the European Union finally recovering almost entirely from the Great Recession, and U.S. GDP growth at above 3%, the ripples of these have apparently reached China’s shores.