China’s Factory Activity Shows Unexpected Growth in December
By Joe Cash and Xiuhao Chen
BEIJING, Dec 31 (Reuters) – In a surprising turn of events, China’s factory activity experienced growth in December, breaking an eight-month streak of decline. This growth was attributed to an increase in pre-holiday orders as officials aim to stimulate the $19 trillion economy’s manufacturing sector without exacerbating deflation.
The official purchasing managers’ index (PMI) rose to 50.1 in December from 49.2 in November, surpassing the 50-point mark that separates growth from contraction and exceeding the forecast of 49.2 in a Reuters poll. Julian Evans-Pritchard, head of China economics at Capital Economics, noted that while this improvement is a positive sign, it may be a temporary upturn driven by month-to-month fluctuations in fiscal spending rather than a sustained recovery.
Despite this, the data provides a glimmer of hope for policymakers who refrained from implementing significant additional stimulus measures in 2025 to achieve the full-year growth target of approximately 5%. The production sub-index surged to 51.7 from 50.0 in November, with new orders climbing to 50.8 from 49.2, marking their strongest performance since March. Supplier delivery times also improved, leading to an increase in production and activity expectations.
However, new export orders remained sluggish, highlighting the importance of boosting domestic demand and reducing reliance on U.S. demand amidst President Donald Trump’s tariffs. Huo Lihui, an NBS statistician, mentioned that confidence seemed to be on the rise due to pre-holiday stockpiling, particularly in sectors like agriculture, food processing, and food and beverage in anticipation of the Lunar New Year celebrations in February.
A separate private-sector PMI also indicated marginal expansion in activity in December driven by stronger production and domestic demand, as foreign orders remained limited. Nevertheless, the challenge lies in reviving domestic demand to prevent exacerbating deflationary pressures. Recent data revealed a 13.1% year-on-year drop in profits for Chinese industrial firms in November, suggesting a reluctance among households to pick up the slack amidst a global economic slowdown affecting exports.
The ruling Communist Party leadership pledged to enhance income and stimulate consumption at a December gathering, acknowledging the need to rebalance the economy and transition away from a production-driven model. President Xi Jinping emphasized the importance of consumption as the sustainable driver of economic growth, highlighting the necessity of addressing overcapacity and promoting domestic consumption.
As China navigates through old problems and new challenges, authorities have vowed to address issues such as overcapacity, price wars, and involution efforts to foster sustainable economic development. The NBS composite PMI of manufacturing and non-manufacturing reached 50.7 in December, compared to November’s 49.7, indicating overall improvement in economic activity.
In conclusion, while the uptick in China’s factory activity is a positive development, sustained efforts are needed to boost domestic demand, address overcapacity issues, and promote consumption to ensure long-term economic stability and growth.
(Reporting by Joe Cash and Xiuhao Chen; Editing by Sam Holmes)
