Decline in Factory Output of China Due to Stricter Pollution Rules

A slower growth in the manufacturing sector of China was less than expected this January due to an 8-month low of cooling property market as well as stricter rules related to pollution which resulted in less factory output.

This gave the first impression of the business situation of China by the start of 2018 and shifted the perception of a losing economy after the positive report of 6.9 in 2017 which has exceeded expectations.

The official report on the PMI published on Wednesday showed a decline to 51.3 in January compared to 51.6 in the previous month. Although, the figure stayed higher than the 50 mark which kept apart contraction from growth on a monthly basis.

Growth is predicted to decline a bit to 51.5 based on the survey done by Reuters to analysts. Reports including output indices, total new orders and imports reflected a moderate growth expansion in January than the previous month while the order of exports also declined slightly. The new export order index fell to 49.5 which is 2.4 percentage point lower than the month before.

Nonetheless, the overall factory data shows a solid growth in 19 consecutive months of growth. At the same time, this supports the idea of the gradual progress of the economy as expected. Economists forecast a 6.5 percent growth by Reuters this year.

Another report on PMI from the steel sector increased to 50.9 in January against 50.2 in December. Moreover, the report in China’s service sector reached a four-month high in January exemplifying a broader steadfast growth of the country. Statistics showed an increase of 55.3 from 55 in December according to non-manufacturing Purchasing Managers’ Index (PMI).

About half of the whole Chinese economy relies on the services sector and consumers would have more spending capacity with the rising of wages.

A sanguine services industry gives a good basis for policymakers who rely on services and consumption to balance the economic growth model with big dependence on exports and investments.