Factory activity in China grows slower, services recover By Reuters

By Joe Cash

BEIJING (Reuters) – China’s manufacturing activity barely grew in December even as services and construction recovered, an official survey showed on Tuesday. This suggests policy stimulus is permeating in some sectors as the economy prepares for new trade risks.

The National Bureau of Statistics (NBS) 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 missing the median forecast of 50, 3 in a Reuters poll.

China’s $18 trillion economy has struggled to recover from the pandemic due to weak consumption and investment and an ongoing housing crisis. However, policymakers are hoping that recent fiscal and monetary measures will trigger a turnaround in the housing market, which has weighed on the broader economy.

Improved domestic demand could benefit manufacturers amid a global economic slowdown and reduce the impact of new tariffs on Chinese goods proposed by U.S. President-elect Donald Trump.

“The worst part of the overcapacity appears to be over, with companies receiving more orders,” said Xu Tianchen, senior economist at the Economist Intelligence Unit. “But there is a high risk that activity will slow again as stimulus fades.”

“The bottom line is that the economic stimulus must be maintained.”

The PMI manufacturing new orders sub-index rose to 51.0 this month – an eight-month high – from 50.8 in November. But sub-indices for new export orders, employment and factory gate prices all remained firmly in negative territory, the NBS said.

Mixed industrial production and retail sales data released earlier this month underscores how difficult it will be for Beijing to engineer a lasting economic recovery in 2025. Government advisers recommend that the economy maintain a growth target of about 5.0% next year and that policymakers accelerate consumer-focused stimulus programs.

The non-manufacturing PMI, which includes construction and services, rose to 52.2 this month after falling to 50.0 in November. The NBS attributed the rebound to growth in China’s financial services, telecommunications and travel sectors.

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

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Analysts at Nomura warned that it was too early to say whether support measures such as a consumer goods trade-in program and easing restrictions on home purchases had done enough to put the economy on a more balanced path in the long term.

“Significant payback effects could follow the increase in purchases of durable goods. The real estate sector has yet to truly recover, weighed down by the debt overhang of distressed developers,” it said in a note, adding that Trump’s return to the White House poses a risk for Chinese exporters.

Trump has promised to impose a 10% tariff on Chinese goods to force Beijing to stop trading Chinese-made chemicals used in fentanyl production. During his campaign, he also threatened tariffs of more than 60% on Chinese goods, posing a major growth risk for the world’s largest goods exporter.

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

The World Bank last week raised its growth forecasts for China for 2024 and 2025, but warned that subdued household and business confidence and headwinds in the real estate sector would weigh on economic growth next year. At its peak in 2021, the sector accounted for around a quarter of the economy.

The private sector Caixin factory survey will be released on Thursday and analysts expect the reading to rise to 51.7.

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

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

“But the recovery is unlikely to last more than a few quarters, with Trump likely to follow through on his tariff threat next year and persistent structural imbalances still weighing on the economy.”