Chief economist update: Chinese green shoots?

It might be a mere 0.2 point above the line but it was indication enough that China's manufacturing sector has stopped contracting.

The official National Bureau of Statistics (NBS) China manufacturing PMI increased to a reading of 50.2 in November - 50 separates contraction from expansion - from 49.3 in the previous month. This is better than market expectations for a small gain to 49.5 and marks the first expansion in manufacturing activity since April this year.

Manufacturing output increased to 52.6 in November - the highest in eight months -- from 50.8 in the previous month, both new orders (51.3 from 49.6 in October) and buying activity (51.0 from 49.8) returning to expansion, and manufacturing sentiment improved to a seven-month high of 54.9 in November (from 54.2).

Similarly, official NBS non-manufacturing data shows China's services sector rising to an eight-month high reading of 54.4 in November from 52.8 in the previous month, with new orders back in expansion (51.3) and confidence up to its highest reading in eight months to 61.0 in November from 60.7 in October.

Are we seeing green shoots in the Chinese economy, fertilised and watered by government and central bank stimulus packages?

Recall that on November 18, the People's Bank of China (PBOC) cut its seven-day reverse repo rate from 2.55% to 2.50% - the first rate reduction in four years (October 2015).

This followed its November 15 injection of CNY200 billion (US$28.6 billion) worth of liquidity into China's financial system via its MLF (medium-term lending facility) loans to banks and the prior week's announcement reduction of the one-year MLF loans from 3.30% to 3.25% -- the first cut since 2016 - and at the same time injecting CNY400 billion (US$56.94 billion) in the system.

In September, the National Development and Reform Commission (NDRC) announced more than one trillion yuan of infrastructure projects to reverse slowing economic growth.

Or is this another one swallow that doesn't a spring make?

To be sure, other indicators point to continued weakening in the Chinese economy.

Retail sales increased by 7.2% in the year to October -- down from 7.8% in the previous month, less than market expectations for an acceleration to 7.9% and the slowest rate since April this year.

Year on year growth in industrial production eased to 4.7% in October from 5.8% in the previous month and slower than market expectations for a 5.4% gain.

Worse, fixed asset investment growth slowed to 5.2% -- its weakest reading on record -- in the January to October period to CNY51.1 trillion from 5.4% in the period between January and September this year.

In addition, industrial profits fell by 2.9% (year-on-year) in the first 10 months of 2019 after declining by 2.1% in the January-September period.

The balance of economic stats and surveys remains on the weakening side.

China's economy could weaken further should the "phase one deal" between the US and China fail and the additional 15% US tariffs on around US$156 billion worth of imports from China take effect on December 15.

Not a good 2020 start.

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