Manufacturing momentum also back on track as new orders rise, says survey

Growth in China's services sector accelerated in November as new business rose at a steady clip, signaling strong consumer demand in the country, a private survey said on Thursday.

The Caixin/Markit China General Services Purchasing Managers' Index, which measures business activities of the sector and surveys mostly smaller businesses, rose to 57.8, the second highest reading since April 2010, from October's 56.8. It represented a 1 percentage point growth on a monthly basis. The reading was just 0.6 percentage point lower than the decade-high of 58.4 registered in June.

The increased activity in the services industry can be largely attributed to the accelerated growth of new orders, the Caixin survey said. Export demand hit a new high not seen since April 2019 and witnessed positive growth for the first time since June this year.

The Caixin China Manufacturing PMI for November, which was released on Tuesday, saw a month-on-month growth of 2.4 percent to 54.9, the highest reading since November 2010. It also signaled an expansion in the country's manufacturing sector for seven months in a row.

Chen Jingyang, an economist with global investment bank HSBC Plc, said the healthy surge in production and profits will boost manufacturing investment in the long run, and the same will become an important driver for GDP growth as policy support for infrastructure investment is likely to taper off.

The Caixin China General Composite Indices－which are weighted averages of comparable manufacturing and services indices－rose by 1.8 percentage points on a monthly basis to 57.5 in November, which is also the highest since March 2010.

Wang Zhe, a senior economist at Caixin Insight Group, explained that momentum had picked up considerably in the manufacturing and services sectors in November, which helped improve the employment rate significantly. Market demand remained robust, while demand from overseas buyers continued to expand.

Positive signs have also emerged in terms of supply, as seen in the higher inventories of manufacturing companies. Entrepreneurs are now more than confident about the Chinese economy, said Wang.

The stimulus policies which were implemented during the COVID-19 epidemic should be revoked steadily given the many uncertainties in the domestic and international markets, he said.

Chen from HSBC said that manufacturers' overall financing costs and tax burden should be further alleviated to facilitate sustainable growth in the manufacturing sector, as required in the 14th Five-Year Plan (2021-25).

The Organization for Economic Cooperation and Development said in its latest Economic Outlook report released on Monday that China is the only major economy that will see positive GDP growth this year.

After falling sharply by 4.2 percent this year, world GDP is projected to rise by 4.2 percent in 2021, with China expected to account for over a third of that growth, according to the report. Activity will continue to be restricted with social distancing and partly-closed borders most likely remaining through the first half of 2021. The global economy is expected to gain momentum only gradually, as vaccines are deployed during the course of the next year, said the OECD report.