An independent survey has indicated that China’s factory activity expanded for the third consecutive month in January, with new export orders recording their first growth in seven months. This contrasts with official data, highlighting the uneven growth in the country’s economy and the necessity for policy support. The Caixin China manufacturing purchasing managers’ index for January came in at 50.8, matching December’s figure and surpassing economists’ expectations of 50.6. In comparison, China’s National Bureau of Statistics reported a fourth consecutive monthly contraction in the official manufacturing PMI, with a January reading of 49.2.
The survey revealed an uptick in overseas demand, marking the first expansion in new export orders in seven months. Companies participating in the survey reported the most significant output increase in investment goods, while the improvement in external demand was primarily observed in intermediate goods. The differing results between the Caixin and official PMI surveys have been attributed to variations in the composition of the sampled companies. The former surveys around 650 private and state-owned manufacturers, which are typically more export-oriented and situated in China’s coastal regions, while the latter surveys 3,200 companies across China.
However, both surveys identified similar trends, including a downward trend in employment within China’s manufacturing sector. Concerns about cost reduction and improved efficiency persisted among companies despite the rise in market activity. The labor market shrunk in January for the 10th time in the last 11 months, albeit less severely than in the previous month. Amid continued staff cuts, companies managed to reduce backlogs of work, albeit moderately.
China has also been grappling with the risk of deflation for the past nine months, with producer prices falling for over a year. Weak price levels were evident, with limited increases in input costs due to a slight rise in raw material prices. Output prices were even weaker, as intensified market competition constrained companies’ negotiating power, pushing the gauge into contractionary territory.
