Manufacturing companies in China reported the strongest upturn in operating conditions since January 2013 at the end of 2016. Production expanded at the fastest pace in nearly six years, supported by a solid increase in total new work. As a result, companies raised their purchasing activity at a quicker rate than in November, which led to a renewed increase in stocks of inputs.

However, employment continued to decline, as companies made efforts to reduce their costs. Nonetheless, input price inflation picked up to its sharpest since early 2011 amid reports of higher raw material costs, which prompted firms to raise their selling prices at a marked rate.

The seasonally adjusted Purchasing Managers’ Index™ (PMI™) picked up from 50.9 in November to 51.9 at the end of 2016. Although modest overall, the latest reading pointed to the fastest rate of improvement in the health of the sector since January 2013.

A further rise in production at Chinese manufacturers supported the higher PMI reading in December. Notably, the rate of output growth accelerated to a 71-month high, with a number of panellists commenting on stronger underlying demand and new client wins.

This was highlighted by a sustained increase in new business during December. As was the case for output, the rate of new order book expansion accelerated since November, and was the strongest since July 2014. Data indicated that improved domestic demand was the key driver of
new business growth, however, as new export sales were unchanged in December.

Greater intakes of new work imparted further pressure on operating capacity in December, with backlogs of work increasing for the tenth month in a row. Moreover, the rate of accumulation was the strongest since July. There were also reports that fewer workers had also contributed to higher amounts of unfinished work.

Chinese manufacturers reduced their workforce numbers for the thirty-eighth month running, though the rate of job shedding was moderate overall. A number of companies mentioned that efforts to reduce their costs had underpinned the latest fall in staff numbers.

Higher amounts of new work led firms to raise their input buying again in December, and at the quickest rate in 29 months. As a result, stocks of purchases rose for the first time since September, albeit only slightly. Meanwhile, inventories of finished items continued to accumulate at a marginal pace.

Stronger demand for inputs led to a further lengthening of average delivery times, as some firms commented on shortages at suppliers. Notably, the rate of deterioration in vendor performance was the fastest in eight months. Inflationary pressures remained sharp in December, with average input prices rising at the fastest rate since March 2011. Output charges also rose sharply, despite the rate of increase softening slightly since November’s 69-month record.