China manufacturing activity contracts for first time since September

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China’s manufacturing activity unexpectedly contracted in January, official data showed on Monday, in a sign of slowing momentum as the country prepares for the lunar new year holiday.

The country’s official purchasing managers’ index, a closely watched gauge amid a gloomy economic backdrop, came in at 49.1, below forecasts and the first contraction since September. A reading of above 50 marks an expansion.

The National Bureau of Statistics said manufacturing activity was “affected by the approaching . . . holiday”, which begins on Wednesday and sees hundreds of millions of Chinese workers travel to their hometowns.

A separate NBS data release on Monday showed industrial profits fell 3.3 per cent over the course of 2024, despite rising 11 per cent year on year in December. The measure, which tracks companies with more than Rmb20mn ($2.8mn) in turnover, has fallen in each of the past three years.

The new figures will add to pressure on China’s policymakers, who are grappling with a property slowdown now in its fourth year, a loss of consumer confidence and the threat of entrenched deflation as well as resurgent trade tensions with the US under Donald Trump.

Official data released this month showed that China’s economy grew 5.4 per cent in the fourth quarter, meeting an annual growth target of 5 per cent, which was the joint lowest in decades. But much of that growth was thanks to industrial output and exports which offset weakness in the property and retail sectors.

Beijing unveiled a series of measures in September to boost the stock market and lower mortgage rates and has previously encouraged state-owned enterprises to buy up unsold housing stock. But economists have called for more direct fiscal support to boost consumption.

President Xi Jinping called for “vigorous” efforts to boost domestic demand after an annual economic conference for party leaders in December.

This month, policymakers expanded a programme to trade-in old goods, such as home appliances, for new ones. Analysts at Goldman Sachs said the trade-in programme helped increase nominal household consumption growth to 4.5 per cent in the last three months of the year, from 3.5 per cent in the previous quarter, based on an NBS household survey.

China this year also faces the prospect of renewed trade disruption following Trump’s return to the White House.

Strong exports last year helped drive China to a record trade surplus of close to $1tn, but Trump has pledged to impose higher tariffs on Chinese goods, and forecasts for 2025 show weaker or in some cases no export growth this year.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said part of the slowdown in the PMI data “may be due to weaker external demand, as the new export orders index dropped to the lowest level since March last year”.

China’s official non-manufacturing PMI gauge, which includes services, was 50.2 in January, remaining in expansionary territory but registering much slower growth than the reading of 52.2 in December.