China’s industrial activity fell in November this year

China's industrial activity

China’s factory activity contracted for the second straight month in November, while non-manufacturing activity hit another new low for the year, suggesting the world’s second-largest economy is yet to emerge from the crisis and may need more strong political support.

The official manufacturing PMI unexpectedly fell to 49.4 in November from 49.5 in October, according to data from the National Bureau of Statistics released on Thursday. This was slightly worse than the median forecast of 49.7. China’s official manufacturing PMI also came in lower than expected last month.

The official index of non-manufacturing managers fell to 50.2 in November from 50.6 in October, according to the same statement by the National Bureau of Statistics. This was the weakest reading since December 2022.

PMI reading above 50 indicates expansion of activity, while reading below this level indicates contraction.

The survey results show that more than 60% of manufacturing companies reported insufficient demand in the market. Zhao Qinghe, chief statistician at the Service Industry Survey Center of the National Bureau of Statistics, said in a separate statement that insufficient market demand remains the main difficulty affecting the current recovery and manufacturing development.

While three of the five manufacturing PMI sub-indices fell in November compared to last month, there were some encouraging green shoots in the manufacturing PMI sub-indices. Both high-tech and equipment manufacturing recorded expansions. In China’s spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent of the central breakeven rate each trading day.

China’s Economy Faces New Challenges as Manufacturing Activity Shrinks

In August, Beijing threw a lifeline to Argentina, which defaulted on its sovereign debt, by arranging to repay half a $2.7 billion installment of an IMF emergency loan in yuan. The goal was for the Latin American country to be able to salvage some of its precious dollar stockpile.

In an arrangement coordinated by the People’s Bank of China and the Central Bank of Argentina via the so-called currency swap line, the payment in yuan was equivalent to the required amount in dollars and China recovered its money in pesos.

It was the second time in six months that Argentina had relied on the yuan to break the impasse, and the government was so thrilled that it decided to deepen the arrangement by paying in yuan for imports from China.

However, the election of a new president, Javier Miele, who calls himself “anarchist capitalism” and who plans to abolish the central bank and replace the peso with the dollar among other radical solutions to the devastated economy, may force Argentina to distance itself from the yuan. But if Miley can’t dollarize the economy (as most economists expect), the yuan could become more advantageous.

This is what Brazil finds under President Luiz Inácio Lula da Silva, who is committed to expanding the role of the Chinese currency in the country’s payment systems.

Measured by the huge tide of foreign-currency transactions that take place every day, the yuan-to-peso swap in Argentina in August was a drop in the sea. However, it should be seen as the latest of Beijing’s many similar deals around the world aimed at increasing the strength of its currency, known as the renminbi, in the markets.

China’s manufacturing industry declines, tough prospects for the world’s largest economy

Weighed down by a lack of demand, China’s manufacturing activity remained in contraction for the second consecutive month in November, pointing to a more difficult path for the world’s second-largest economy. The National Bureau of Statistics said on Thursday that the official manufacturing PMI stood at 49.4, compared to 49.5 in October. The manufacturing PMI reading was below market expectations, with Bloomberg forecasting slight growth to 49.8. It is the lowest reading since 49.3 in July.

A PMI reading above 50 usually indicates expansion activity, while the reading below indicates contraction.

China’s manufacturing PMI has been in contraction for five consecutive months since April, and after returning to expansion in September, it returned to contraction in October.

“Weighed down by factors including some manufacturing entering the traditional off-season and insufficient market demand, the manufacturing PMI was slightly lower than last month by 0.1 percentage points,” said Zhao Qinghe, a statistician at the National Bureau of Statistics.

Within the official manufacturing PMI, the new orders sub-index fell to 49.4 in November, down from 49.5 in October, while the new export orders sub-index fell to 46.3 from 46.8 in October.

Meanwhile, the non-manufacturing PMI came in at 50.2 in November, compared to 50.6 in October. Within the non-manufacturing PMI, the construction sub-index came in at 55, up from 53.5 in October. “The expansion of the construction industry is accelerating. Zhao added that construction companies have recently raised their confidence in the market. The central breakeven rate of the yuan against the US dollar is based on the weighted average prices offered by market makers before the opening of the interbank market on each business day.

Industrial challenges: low demand and difficulties in global markets

Zhao Qinghe, a statistician at the National Bureau of Statistics, attributed the decline to several factors, including “off-season” effects in some manufacturing industries and “insufficient market demand.” This explanation points to cyclical and demand-driven challenges affecting the manufacturing sector.

Within the manufacturing PMI, there was a decline in the new orders sub-index to 49.4 from 49.5, further reflecting demand-side conflicts. In addition, the sub-index of new export orders fell to 46.3, down from 46.8, indicating challenges in foreign markets and possibly reflecting global economic conditions..

The non-manufacturing PMI also saw a decline, moving from 50.6 to 50.2, which is lower than expected at 51.1. However, within the non-manufacturing PMI, the construction sub-index showed improvement, rising to 55 from 53.5. The official composite PMI, which combines manufacturing and services, fell to 50.4 from 50.7.

The central breakeven rate of China’s renminbi, or yuan, rose 13 points to 7.1018 against the US dollar on Thursday, according to China’s foreign exchange trading system.

The PBOC has been busy working on similar swap arrangements, most notably with Russia in a deliberate strategy to help evade sanctions that have prevented it from exploiting its international reserves held in other entities.