China’s factory activity has unexpectedly contracted in January, according to official survey data released on Saturday. The Purchasing Managers’ Index (PMI) fell to 49.3, down from 50.1 in December, slipping below the critical 50-mark that separates expansion from contraction. The result missed analysts’ forecasts, which had predicted the index would hold steady at 50.0.
The contraction was driven by weakening domestic demand. Sub-indexes for new orders and new export orders both declined. New orders dropped to 49.2 from 50.8 in December, while new export orders fell to 47.8 from 49.0 the previous month. The non-manufacturing PMI, encompassing services and construction, also saw a decrease, falling to 49.4 from 50.2 in December, marking its lowest level since December 2022.
Despite achieving its official growth target of 5 per cent last year, underpinned by robust exports, China’s economy faces underlying challenges. Retail sales weakened in the final quarter, contributing to a three-year low in fourth-quarter GDP growth. Policymakers are increasingly concerned about the persistent downturn in domestic demand.
In response, the government has initiated measures to stimulate household spending and boost services consumption. These include allocating funds for consumer subsidies to replace products, ranging from home appliances to smartphones. Beijing has declared that boosting domestic demand is a top priority for the year, with an increased emphasis on achieving technological self-reliance to mitigate vulnerabilities to foreign trade disruptions and protectionist policies.
