China’s factory activity showed signs of sustained expansion in December, with the official manufacturing purchasing managers’ index (PMI) remaining above the critical 50-point threshold for the third consecutive month.
The PMI stood at 50.1 in December, slightly down from 50.3 in November, according to data from the National Bureau of Statistics (NBS).
This was also below the estimates from economists.
The slowdown in factory activity was due to a decline in the output component, Gabriel Ng from Capital Economics said in a note.
He also mentioned that the output price component fell, indicating ongoing downward pressure on prices.
A reading above 50 indicates expansion, while a reading below 50 signals contraction.
This marks a continuation of the country’s recovery, with expanding economic activity bolstered by macroeconomic policies and seasonal factors.
What drove the expansion?
Zhao Qinghe, a senior statistician at the NBS, attributed the sustained expansion to the combined effects of macroeconomic policies, which have been evident since October.
He highlighted that policies encouraging the replacement of old consumer goods and the approach of traditional festivals helped accelerate growth in key sectors.
In addition to the manufacturing PMI, China’s non-manufacturing PMI, which tracks the service and construction sectors, saw notable expansion, rising to 52.2 in December, up from 50 in November.
This increase points to stronger activity in these sectors, with fiscal support boosting infrastructure spending and easing pressure on construction projects.
However, while domestic demand is expanding, there are challenges. Some industrial enterprises are facing intensified competition and declining profitability, as noted by an NBS spokesperson.
Exports remain a concern for China
Within the manufacturing PMI, the subindex for new export orders rose slightly to 48.3 in December, compared with 48.1 in November.
Despite the overall growth in domestic demand, exports remain under pressure due to external uncertainties.
The export orders index rose to its highest level in four months, likely driven by U.S. importers trying to beat potential higher tariffs that incoming US President Donald Trump might impose on Chinese goods, according to Gabriel Ng.
Beijing is expected to implement more targeted fiscal stimulus in response to Trump’s tariffs in the coming year, with reports suggesting that the country will increase fiscal spending to support economic growth.
The construction sector showed resilience, with the construction subindex rising to 53.2 in December, up from 49.7 in November.
While non-manufacturing sectors have demonstrated resilience, analysts remain cautious about the sustainability of the recovery.
China’s official composite PMI, which combines both manufacturing and non-manufacturing activity, stood at 52.2 in December, improving from 50.8 in November.
This improvement reflects an overall recovery, but uncertainties remain, particularly regarding international tensions and potential tariff increases, especially with the looming inauguration of Donald Trump in January.
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