China’s Factory Activity Slips into Contraction in January Amid
Weak Domestic Demand
The official purchasing managers’ index
drops to 49.3 in January, from 50.1 in December
·
China’s manufacturing
activity contracted in January, reflecting continued weakness
in domestic demand, according to an official survey.
·
The official
Purchasing Managers’ Index (PMI) fell to 49.3 in January from 50.1 in December,
slipping below the 50 mark that separates expansion from contraction.
·
The reading missed
market expectations of 50 in a Reuters poll of analysts.
·
New orders PMI declined to 49.2 from 50.8, signalling softer
domestic demand.
·
New export orders also weakened, dropping to 47.8 from 49.0, indicating slowing
external demand.
·
The non-manufacturing
PMI (services and construction) fell to 49.4 from 50.2, its lowest level since December 2022.
·
China’s statistics bureau noted that January is seasonally weak for some manufacturers,
while overall market demand remains subdued.
·
Although China met its 5% GDP growth target last year, growth was
largely supported by exports amid US tariff pressures.
·
The headline growth masked structural weaknesses, with retail sales
softening and fourth-quarter
GDP growth falling to a three-year low.
·
Policymaker concerns are rising as the domestic demand slowdown persists.
·
The government has front-loaded
62.5 billion yuan from special treasury bonds to fund consumer
subsidies for goods such as appliances and smartphones.
·
China’s central bank has cut sector-specific interest rates and
signalled scope for further
reserve requirement and rate cuts this year.
·
Authorities are shifting focus towards boosting services consumption
to absorb excess manufacturing output.
·
Analysts remain cautious, warning that current measures may be insufficient
to stabilise growth.
·
Nomura’s chief China economist said more comprehensive policy actions
may be required to achieve GDP growth above 4.5% in 2026.
·
The government has pledged to make domestic demand its top priority,
alongside strengthening technological
self-reliance.
·
President Xi Jinping has called for vigorous development of advanced
manufacturing and making domestic demand the main growth driver.
·
China is expected to set its 2026 growth target between 4.5% and 5%,
reflecting a cautious stimulus stance.
·
Analysts expect the private-sector
RatingDog PMI to rise slightly to 50.3, with data due on February 2.
China’s
factory activity faltered in January as weak domestic demand dragged down production
at the start of the new year, an official survey showed on Saturday.
The
official purchasing managers’ index (PMI) dropped to 49.3 in January, from 50.1
in December, below the 50-mark separating growth from contraction. It missed a forecast
of 50 in a Reuters poll of analysts.
Sub-indexes
of new orders and new export orders also saw declines, respectively, down to 49.2
from 50.8 in December and 47.8 from 49.0 in December.
The
non-manufacturing PMI, which includes services and construction, dropped to 49.4
from 50.2 in December, falling to its lowest since December 2022.
A
statistician with the National Bureau of Statistics, Huo Lihui, said in a note that
some types of manufacturers traditionally enter a slow period in January and market
demand remains weak.
The
world’s second-largest economy hit the government’s official growth target of 5
per cent last year, underpinned by strong exports that defied pressure from US President
Donald Trump’s tariff offensive.
But
the headline figure masked deep-seated imbalances in the economy. Retail sales weakened
further in the final quarter, dragging fourth-quarter gross domestic product growth
to a three-year low.
Signs
of unease are growing among policymakers as the domestic demand downturn persists.
The
government front-loaded 62.5 billion yuan (US$8.99 billion) from ultra-long special
treasury bond funds to support its scheme offering consumers subsidies to replace
a range of products, from home appliances to smartphones.
Earlier
this month, China’s central bank announced cuts to sector-specific interest
rates and signalled it has room this year to further reduce banks’ cash reserve
requirements and deliver broader rate cuts.
As
authorities struggle to spur household spending on goods, they are also pivoting
towards measures aimed at boosting services consumption, in a bid to absorb the
output of the manufacturing sector.
Still,
analysts remain sceptical about how much these steps could help stabilise growth.
“Beijing
will have to do much more in coming months to deliver an annual GDP growth rate
above 4.5 per cent in 2026,” Lu Ting, chief China economist at Nomura, said in a
note. “As Beijing runs out of easily implemented policy tools, policymakers may
need more time to prepare more comprehensive measures.”
Beijing
has vowed to make boosting domestic demand its top priority this year, while sharpening
its focus on achieving tech self-reliance to reduce vulnerability to foreign trade
blockades and protectionist measures.
At
a recent seminar attended by senior government officials, President Xi Jinping called
for “developing advanced manufacturing vigorously” and pledged to “make domestic
demand the main driving force of economic growth”.
China
is likely to set this year’s official growth target between 4.5 per cent and 5
per cent, the South China Morning Post reported, as policymakers take a cautious
approach to stimulus with a stock market bubble on their minds.
Analysts
polled by Reuters forecast the private-sector RatingDog
PMI to come in at 50.3, up from 50.1 a month prior. The data will be released on
February 2.