Jamie Spencer
China’s manufacturing sector showed slower-than-expected growth in December, signaling that Beijing’s stimulus measures have yet to meaningfully revitalize its struggling economy. The official purchasing managers’ index (PMI) for December came in at 50.1, barely above the expansion threshold and missing analysts’ expectations of 50.3, according to data from the National Bureau of Statistics (NBS).
Manufacturing PMI Misses Expectations
December’s manufacturing PMI of 50.1 reflects stagnation, matching October’s figure but below November’s reading of 50.3. A PMI above 50 indicates expansion, while a reading below 50 suggests contraction. Growth was seen in specific sectors, including agricultural food processing, general equipment, and food and beverages. However, this was not enough to lift overall factory activity meaningfully.
Non-manufacturing activity, which includes the services and construction industries, showed a brighter outlook. The non-manufacturing PMI rose to 52.2 in December, up from 50.0 in November, with 17 out of 21 surveyed industries, including aviation and telecommunications, reporting higher activity.
Economic Stimulus Measures Struggle to Drive Recovery
Beijing’s stimulus measures, including fiscal support and monetary easing, have helped prevent contraction but fall short of fully reinvigorating the economy. Larry Hu, chief China economist at Macquarie Group, commented:
“Deflationary pressures have persisted as policy stimulus is just enough to hit the GDP target, but far from enough to reflate the economy.”
While the World Bank raised its forecast for China’s GDP growth to 4.9% in 2024, other data reveals persistent challenges. Consumer inflation fell to its lowest level in five months in November, export and import figures disappointed, and industrial profits declined for the fourth consecutive month, dropping 7.3% year-over-year in November.
Construction and Services Sectors Show Promise
The construction industry returned to expansion in December, buoyed by upcoming Spring Festival holidays. This rebound contributed to the increase in the non-manufacturing PMI. Tommy Xie, head of Asia macro research at OCBC, noted:
“One of the reasons last month [when] we had a big swing in the non-manufacturing PMI was partially because construction PMI declined a lot.”
With increased fiscal spending and infrastructure projects planned for the coming year, the construction and services sectors could provide a partial buffer against broader economic stagnation.
Challenges Ahead: Global Trade and Policy Uncertainty
China faces mounting challenges in the global arena. Donald Trump’s return to the White House could spell trouble for China’s export sector, with threats of increased tariffs and trade barriers compounding difficulties already posed by the European Union.
Additionally, weak domestic demand continues to weigh heavily on the economy. Retail sales have underperformed, and disinflationary pressures linger, reflecting tepid consumer spending despite government efforts to stimulate consumption through trade-in programs and subsidies.
Fiscal Boosts Offer Hope for 2025
Looking ahead, China’s finance ministry announced a record issuance of 3 trillion yuan ($411 billion) in special treasury bonds for next year to bolster fiscal stimulus. Measures include expanding consumer goods trade-ins, raising pensions, and increasing medical insurance subsidies, aiming to stimulate economic activity and lift household consumption.
China’s December PMI data underscores the challenges facing the world’s second-largest economy as it struggles to gain momentum. While stimulus measures have stabilized growth, weak domestic demand, disinflation, and global trade uncertainties pose significant hurdles. As China gears up for 2025, the government’s ambitious fiscal plans and targeted sectoral investments may provide some relief, but a sustained recovery will require stronger consumer demand and a clearer global economic landscape.
