(Yicai Global) Dec. 31 — China’s factory activity edged higher in December for a second month in a row, as cost pressures on companies abated somewhat following a drop in commodity prices.

The purchasing managers’ index for manufacturing stood at 50.3 this month, up from 50.1 in November, according to data the National Bureau of Statistics released today. A reading above 50 indicates an expansion in factory activity.

China’s economy continues to recover in an all-round manner, according to Zhang Liqun, an analyst at the China Federation of Logistics & Purchasing. Significant price declines indicate the emerging effect of policy to ensure stable supply and prices, but the problem of insufficient demand remains severe, he said.

Small firms, in particular, face difficulties, Zhang said, adding that domestic demand needs expanding and the economic environment for businesses needs improving, especially for small and micro-businesses.

The PMI for small firms was 46.5 in December, down 2 points from last month, the NBS data showed. For large and mid-sized businesses, it was 51.3, gaining 1.1 point and 0.1 point.

Among the five sub-indexes, output reached 51.4. Despite falling 0.6 point from November, it remains in expansion territory. But the gauges for new orders, raw material stocks, employment, and supplier delivery times are contracted.

The NBS’s survey of businesses showed that the proportion complaining about not enough market demand rose 1.4 point from the previous month, said Wen Tao, an analyst at the China Logistics Information Center. That suggests demand was weaker than normal in the peak consumption month of December, he added.

In particular, output and new orders at small companies fell more than 3 points, indicating that the operating pressure on such firms has intensified rapidly. But the new orders index was 49.7 in December, climbing for a second consecutive month, meaning demand still has room to pick up, he noted.

Wen said that in 2022, favorable conditions and positive factors for the economy will increase, and generally things will stabilize. The economy is expected to rebound in the second half, with annual growth set to remain within a reasonable range.

Editor: Peter Thomas