China manufacturing picks up but activity still shrinking

A gauge of Chinese factory activity ticked up in December but continued to indicate contraction for a fifth straight month, official data showed Friday, as the world's number two economy heads for its worst annual growth for 25 years.

The mild improvement follows a string of stimulus measures from Beijing, including six interest rate cuts in the year up to November as well as reductions in the amount of cash banks must keep in reserve, both intended to boost lending.

The figures come as a survey showed another slight increase in new home prices last month, suggesting the government's monetary loosening is kicking in.

The official Purchasing Managers' Index (PMI) of manufacturing activity -- which tracks activity in the factories and workshops sector -- edged up to 49.7 in December from 49.6 registered the month before, which was a three-year low.

However, it was short of the 49.8 forecast in a poll of economists by Bloomberg News. Anything below 50 is considered shrinkage and anything above is seen as growth.

"Although the PMI slightly rebounded this month, it still lies below the critical point and is lower than historic levels over the same period,” said Zhao Qinghe, senior statistician with the National Bureau of Statistic, in a statement on the bureau's official website.

The figures are the latest to highlight a continuing growth slowdown in the economy, which expanded 6.9 percent in July-September, the weakest rate since the 2009, during the global financial crisis.

Many analysts believe the actual increase was even lower, due to factors such as the weak PMI readings.

- Property boost -

Economists say indexes such as the PMI for December indicate that though the government is likely to achieve its 2015 growth target of "about seven percent", the economy nevertheless remains plagued by "substantial downside risks".

"The improvement in the index suggests growth momentum has continued to stabilise, in part due to the government’s stimulus efforts," Fielding Chen, an economist at Bloomberg Intelligence, told Bloomberg News, adding:

"Nevertheless, another reading below the 50 threshold ... suggests the economy stays broadly weak."

The economy -- a key driver of global expansion -- grew at its slowest pace for 24 years in 2014 and has eased further this year, raising concerns on global markets.

And in July-September the country logged its worst economic performance since the global financial crisis, with growth of just 6.9 percent.

A major drag on growth has been a slowdown in the property sector, which has stagnated over the past two years with buyers priced out of the market, with home sales dropping 7.8 percent in value in 2014.

But there was some welcome news Friday, with the China Index Academy (CIA) saying in a report that the average price of a new home in China's 100 major cities rose 0.74 percent month-on-month in December to 10,980 yuan ($1,686) per square metre. That represented a pick-up from November's 0.46 percent rise and is the fifth monthly increase in a row.

On a year-on-year basis, prices increased 4.15 percent.

Policy makers have asked developers to "moderately cut housing prices", among other measures, in an effort to clear unbought inventories and stabilise the property market.