China’s manufacturing activity unexpectedly contracted in January, according to an official factory survey released on Monday (January 27). The official Purchasing Managers’ Index (PMI) dropped to 49.1 from 50.1 in December, marking the weakest reading since August. This figure missed the median forecast of 50.1 in a Reuters poll, keeping alive calls for stimulus measures in the world’s second-largest economy.
Despite meeting the government’s annual growth target of “around 5 percent” for 2024, China’s economic recovery has been uneven. While exports and industrial output surged, retail sales and unemployment remained weak. The contraction in manufacturing activity highlights ongoing challenges within the economy.
China’s Manufacturing Activity Contracts in January, Fueling Calls
One of the looming threats to China’s growth is US President Donald Trump’s decision to impose a 10 percent punitive duty on Chinese imports starting February 1. This measure is to pressure Beijing to tackle fentanyl precursor trafficking. This will potentially expose the economy’s heavy reliance on exports for growth.
China’s trade surplus reached nearly US$1 trillion in 2024, with exports buoyed by factory gate deflation and a weak yuan. However, these external gains have not been mirrored by domestic demand. Falling prices are impacting corporate profits and workers’ wages, further compounding the economic strain.
The non-manufacturing PMI, which tracks services and construction, also slowed in January, falling to 50.2 from 52.2 in December.
Policymakers have additional stimulus for 2025, but there are concerns that it will be focused on industrial upgrades and infrastructure rather than household consumption. Analysts worry this could exacerbate factory overcapacity, weaken domestic spending, and increase deflationary pressures.
Beijing has pledged to prioritize revitalizing domestic demand, but so far, policy measures have been limited to initiatives such as expanding trade-in programs for consumer goods and attempting to boost the troubled property sector.
For the analysis and updates, visit FXAN to stay informed on the latest news and insights. Also, follow us on Instagram.