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China's Manufacturing Output Strengthens with Trade Deal in Sight

Dec. 31, 2019
The upcoming Lunar New Year has boosted the domestic market while the Christmas season bolstered overseas demand.

China’s manufacturing sector continued to expand output in December, adding to evidence that the world’s second-largest economy is stabilizing as the signing of a phase one trade deal with the U.S. nears.

The manufacturing purchasing managers’ index remained at 50.2, according to data released by the National Bureau of Statistics on Tuesday. The outlook for export-oriented firms brightened, with a sub-index of new orders for export rising above the 50 mark for the first time since May 2018, production recovered for a second month and output prices narrowed their decline.

On the downside, the non-manufacturing gauge fell to 53.5 from 54.4, and an index of small manufacturing firms dropped after a strong rebound from the previous month.

China’s economy appears to be reaching the bottom of a cyclical slowdown as 2019 draws to a close, aided by the prospect of an agreement that will prevent further tariff increases on goods shipped to the U.S. and de-escalate a trade war that’s battered the global economy. Domestic stimulus efforts, ranging from tariff cuts to support for infrastructure spending, are also buoying sentiment.

The White House’s leading China hawk, trade adviser Peter Navarro, said Monday that the preliminary trade deal reached earlier this month with Beijing is completed.

“That’s a done deal, put that one in the bag,” Navarro said on Fox News.

He declined to confirm a report by the South China Morning Post that Chinese emissaries led by Vice Premier Liu He will travel to Washington this weekend to sign the accord.

In his New Year’s Eve speech, President Xi Jinping said he expects 2019 gross domestic product to be close to 100 trillion yuan ($14 trillion) and GDP per capita this year should reach $10,000. He did not mention the trade tensions with the U.S.

The upcoming Lunar New Year has boosted the domestic market while the Christmas season bolstered overseas demand, according to a statement by the China Logistics Information Center, which helps compile the data. News about a phase-one trade deal has stabilized market confidence and expectations, which benefits both imports and exports, it said.

The reading “reflects the continued recovery of manufacturing confidence due in part to the easing of U.S.-China trade tensions,” Yingke Zhou, a China economist at Barclays Capital Asia Ltd in Hong Kong wrote in a note. “We remain constructive on a near-term recovery,” and the central bank will likely announce a cut in banks’ reserve ratios as early as this week, he said.

The economy still faces strong growth headwinds into 2020 as the private sector struggles to access cheap funding and the large amount of outstanding debt limits the scope of government spending.

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