Manufacturing in China unexpectedly contracted in January in the first slowdown in four months, an official factory survey showed on Monday, as workers began leaving assembly lines to travel to their hometowns for the Lunar New Year holidays.
The official purchasing managers' index (PMI), based on a survey of factory managers, contracted to 49.1 in January, its weakest since August, from 50.1 in December, the National Bureau of Statistics said. A PMI reading above 50 indicates expansion. Under 50 signals a contraction in activity.
New orders and production also contracted.
The slide in factory activity was partly due to the approach of the holidays, said Zhao Qinghe, a bureau senior statistician.
China's most important public holidays will begin Tuesday and continue until Feb. 4. Millions of Chinese leave the cities to travel back home for a rare break with family during the holidays, which tend to distort economic data early in the year.
China's $18 trillion economy hit the government's growth target of "around 5%" over 2024 but in a lopsided fashion, with exports and industrial output far outpacing retail sales and unemployment remaining elevated.
While activity slowed this month, it's likely to pick up again thanks to the government's efforts, Zichun Huang of Capital Economics said in a commentary.
"But the disappointing PMI data underscores the difficulty policymakers face in achieving a sustained recovery in growth," she said.
She noted that the PMI for construction also fell.
"This is disappointing, and suggests that fiscal support may be struggling to offset the broader pressures weighing on construction activity,” Huang said.
The outlook for exports also remains uncertain, given threats by U.S. President Donald Trump to raise tariffs on imports from China.
Trump's threat to impose a 10% punitive duty on Chinese imports on Feb. 1 to push Beijing to clamp down on trafficking of the chemical precursors of fentanyl risks exposing how reliant its economy is on exports for growth.
China's trade surplus reached almost $1 trillion last year, as producers looked to shift stocks overseas to counter weak domestic demand. The country's outbound shipments were further assisted by factory gate deflation and a weak yuan, making Chinese goods more competitive in global markets.
But back at home, falling prices ripped into corporate profits and workers' incomes.
The non-manufacturing PMI, which includes services and construction, slowed to 50.2 from 52.2 in December.
Policymakers have promised to roll out further stimulus over 2025, but analysts worry it will remain focused on industrial upgrades and infrastructure, rather than households, which could worsen overcapacity in factories, weaken consumption and increase deflationary pressures.
Beijing has pledged to prioritize revitalizing domestic demand but has revealed little apart from a recently expanded trade-in program that subsidizes purchases of cars, appliances, and other goods.
Chinese leaders are also hoping policy support measures late last year will increase demand in the struggling property sector and ease developers' financial difficulties, which significantly impact domestic demand and local government finances.
Getting Chinese consumers to spend again would reduce producers' exposure to Trump's tariff threats, which, on the campaign trail, he said could be as high as 60%.
