In an unexpected turn, China’s factory activity contracted in January, breaking the three-month trend of expansion, attributed partially to the traditional slow season leading up to the Lunar New Year.
The official purchasing managers’ index for January fell short at 49.1, according to data released by the National Bureau of Statistics on Monday, missing Reuters poll estimates of 50.1. The decrease from December’s reading of 50.1 and November’s 50.3 highlights the shift to contraction from expansion in activity when the reading drops below the 50 threshold.
With the Chinese New Year approaching on January 29th and the subsequent return of migrant workers to their hometowns, the manufacturing PMI typically softens, as explained by Goldman Sachs’ chief China economist Hui Shan. On the other hand, the non-manufacturing PMI, reflecting services and construction activity, fell to 50.2 in January from 52.2 the prior month.
Meanwhile, December saw a notable 11% increase in China’s industrial profits compared to a year ago, breaking the losing streak since July. The rebound follows a significant 27% year-on-year plunge in September, with subsequent declines of 7.3% in November and 10% in October, largely influenced by the struggling real estate sector and weak income conditions weighing on consumer demand.
Industrial profits serve as a vital gauge of the financial standing of Chinese factories, utilities, and mines. Despite the December surge, the full-year industrial profits for 2024 dipped by 3.3% compared to the previous year, marking the third consecutive year of decline.
In 2023, China managed to meet its annual growth target with a 5.0% expansion, propelled by an array of stimulus measures. Analysts noted the dominance of industrial output growth over retail sales, highlighting the country’s supply-side resilience amid tepid domestic demand.
