Caixin index reaches 3-month high, leading to calls for consumption boost
The better-than-expected rebounds in China's services and manufacturing sectors in November, as shown by a private-sector index, solidify the positive trajectory of the country's economic recovery, suggesting that government support is taking effect and that business activities are picking up steam, experts said.
That said, as challenges and uncertainties remain, they called for continued efforts to further shore up domestic consumption and scale up effective investment, thus boosting market expectations and sustaining stable economic growth.
The Caixin services purchasing managers' index rose to 51.5 in November from October's 50.4, registering a three-month high, according to a report released on Tuesday by media group Caixin and information provider IHS Markit. The 50-point mark separates expansion from contraction in activity.
Citing the previously released Caixin manufacturing PMI for last month, which rose by 1.2 percentage points to 50.7 and bounced back to expansionary territory, the report noted that the rebounds in both sectors have propelled the Caixin composite PMI for November to 51.6 from 50 in October, reaching a new high for the past three months.
The twin expansions in November signal a positive outlook for China's macroeconomy, which is attributable to steady consumer spending, solid industrial production and improved market expectations, said Wang Zhe, a senior economist at Caixin Insight Group.
Although the growth in new orders for services in November remained modest, it recorded the highest level since September, which surveyed businesses attributed to improved market fundamentals, the report said, adding that insufficient clients, however, would still put a drag on its overall growth.
Additionally, the services sector in China is showing signs of increased market confidence, as some enterprises anticipate improvements in the economic landscape and a rise in customer numbers, according to the report.
The pressures still linger in the services sector as the reading for employment fell into the contraction zone for the first time since February and prices charged by services grew at a slower pace, the report stated.
Despite positive developments in the services sector, various unfavorable factors such as insufficient internal and external demand and significant employment pressure continue to weigh on China's economy. The foundation of recovery needs further consolidation to ensure sustained growth, Wang said.
The export expansion in the services sector was countered by a decrease in demand for manufacturing exports, resulting in a persistent reduction in new export orders, Wang said, adding the overall employment continued a mild contraction for the third consecutive month despite a marginal increase in backlogs of orders.
As a result, intensified efforts should be directed toward establishing a robust groundwork for sustained economic growth and fostering enduring market confidence in the long run, with a focus on expanding consumption, promoting employment and increasing incomes, Wang said.
Temporary measures such as discounts, promotions and the distribution of consumption vouchers are good, but equally important is the task of ensuring stable job creation and income expectations. Such a fundamental step can foster a robust and enduring consumer base and unleash the potential of domestic demand, said Cai Hanpian, a researcher at the National Economy Research Center, which is part of Peking University.
On top of exercising prudent monetary policy alongside accommodative fiscal measures, providing ample liquidity to businesses and reducing their costs, and efforts to maintain policy continuity are crucial for delivering a stable investment environment to enterprises and boosting their willingness to boost production, Cai said.
The anticipated improvement in economic indicators for December, fueled by the lower base effect, indicates that the annual growth objective of roughly 5 percent is likely to be met, notwithstanding the seasonal downward pressures facing the PMI for December, said Xiong Yuan, chief economist at Guosheng Securities.
Further rate cuts and a reduction in the reserve requirement ratio could be expected later this month, and China will likely pursue expansionary policies to bolster its economy next year, Xiong said.