Factory activity in China grows slower and services recover by Reuters

Written by Joe Cash

BEIJING (Reuters) – China’s manufacturing activity barely grew in December despite a recovery in services and construction, an official survey showed on Tuesday, suggesting political stimulus is extending to some sectors as the economy braces for new trade risks.

The National Bureau of Statistics’ Purchasing Managers’ Index (PMI) slowed to 50.1 in December from 50.3 the previous month, remaining above the 50 mark that separates growth from contraction but below the average forecast of 50.3 in a Reuters poll.

China’s $18 trillion economy is struggling to recover from the pandemic amid weak consumption and investment and a protracted real estate crisis. However, policymakers hope that the latest campaign of fiscal and monetary measures will transform the property market, which has affected the broader economy.

Improving domestic demand could benefit manufacturers amid the global economic slowdown, reducing the impact of new tariffs proposed by US President-elect Donald Trump on Chinese goods.

“The worst of the spare capacity seems to be over, and companies are receiving more orders,” said Xu Tianchen, chief economist at the Economist Intelligence Unit. “But there is a significant risk that activity will slow again if the stimulus declines.”

“The bottom line is that the stimulus needs to continue.”

The new orders subindex for the manufacturing PMI rose to 51.0 this month – the highest level in eight months – up from 50.8 in November. The agency said that the sub-indices for new export orders, employment and factory gate prices all remained steady in negative territory.

Mixed November industrial production and retail sales data released earlier this month underscore how challenging Beijing will be to achieve a durable economic recovery in 2025. Government advisers recommend that the economy maintain its growth target of about 5.0% next year and that policymakers step up that. Consumer-focused motivation.

The non-manufacturing PMI, which includes construction and services, rose to 52.2 this month, after slowing to 50.0 in November. The office attributed this rise to growth in the financial services, communications and travel sectors in China.

Following the data, China’s blue-chip index fell 0.6%, while Hong Kong’s index rose 0.35%.

Keep the motivation coming

Analysts at Nomura Bank cautioned that it was too early to say whether support measures such as the consumer goods trading scheme and easing restrictions on property purchases, for example, had done enough to make the economy more balanced in the long term.

“The rise in purchases of durable goods may be followed by noticeable recovery effects. The real estate sector has not yet truly recovered, under the weight of debts accumulated by distressed developers,” they said in a note, adding that Trump’s return to the White House poses a risk to Chinese exporters.

Trump has pledged to impose 10% tariffs on Chinese goods to force Beijing to stop smuggling Chinese-made chemicals used in the production of fentanyl. He also threatened to impose tariffs of more than 60% on Chinese goods during his election campaign, posing a major risk to the growth of the world’s largest exporter of goods.

At an agenda-setting meeting earlier this month, policymakers pledged to increase the budget deficit, issue more debt and ease monetary policy to support economic growth.

Last week, the World Bank raised its growth forecasts for China for 2024 and 2025, but warned that weak household and business confidence, along with headwinds in the real estate sector, will affect economic growth next year. At its peak in 2021, the sector represented about a quarter of the economy.

The Caixin Private Sector Factories Survey will be released on Thursday and analysts expect its reading to rise to 51.7.

China’s official composite PMI for December, which includes manufacturing and services activity, rose to 52.2 in December, up from 50.8 the previous month.

“The increase in policy support towards the end of the year clearly provided a boost to near-term growth,” said Gabriel Ng, associate economist at Capital Economics.

“But the consolidation will likely not last more than a few quarters, as Trump is likely to follow through on his threat to impose tariffs next year, and persistent structural imbalances continue to weigh on the economy.”