China's manufacturing sector witnessed a deceleration in growth in January, as workforce levels experienced the most notable decline since 2020, and export orders continued to fall for the second consecutive month. This trend is in part due to international policy factors imposing considerable challenges on the economy.
According to data from S&P Global, the Caixin Purchasing Managers' Index dipped slightly to 50.1 in January, down from December's 50.5 reading. Nonetheless, a figure above 50.0 still signifies expansion within the manufacturing sector.
In January, production growth picked up pace, aligning with trends in new orders. This was spurred by underlying demand improvements and enhanced promotional strategies which bolstered output growth. However, new export orders continued their decline for the second month in a row.
Manufacturers reported increased optimism, buoyed by stronger demand and expectations for continual growth. Conversely, employment in the sector saw its most rapid decrease since February 2020, as uncertainty around growth forecasts impacted hiring decisions.
The purchasing activity within the sector rose in response to increased workloads. Companies augmented their inventory of both purchases and finished goods, reflecting a strategy to maintain larger buffer stocks.
Average input prices remained stable, as discounts from suppliers helped counterbalance increasing raw material costs. Manufacturers reduced their selling prices to bolster sales, marking the second consecutive monthly decline in charges, at the fastest rate observed in eighteen months.
The policy measures implemented since September 2024 have evidenced tangible progress, allowing China to meet its economic growth objectives for the year, as noted by Wang Zhe, Senior Economist at Caixin Insight Group.
However, Zhe cautioned that the efficacy of stimulus initiatives, such as large-scale equipment enhancements and consumer goods trade-in programs, may wane this year.
Additionally, growing uncertainties in international policy frameworks could exacerbate challenges in the export environment and present significant economic obstacles, according to Zhe.
