In December, China’s manufacturing sector showed a slight growth for the third consecutive month, although the evidence points towards fragile momentum rather than a robust recovery. The official Purchasing Managers’ Index (PMI), produced by the National Bureau of Statistics, edged down to 50.1 from November’s 50.3. While remaining above the key threshold of 50, which separates growth from contraction, this number falls short of the 50.3 predicted in a Reuters poll. This stagnation signals that the recovery process for China’s $19 trillion economy from the pandemic aftermath remains a considerable challenge.
Policy makers in China are seemingly optimistic that various fiscal and monetary measures initiated recently will eventually catalyze improvements within the beleaguered property market. This sector has been a significant drag on overall economic health. An increase in domestic demand could provide some relief to manufacturers, especially as global economic conditions appear to worsen. Additionally, the mixed results from November’s industrial output and retail sales data highlight the uphill battle Beijing faces in achieving a reliable and durable economic recovery as we approach 2025.
The non-manufacturing PMI did show a more encouraging trend, rising to 52.2 in December from a neutral 50.0 in November. This suggests that sectors such as services and construction may be performing better compared to manufacturing, offering a glimmer of hope in an otherwise turbulent economic landscape.
Adding to the complexity, U.S. President-elect Donald Trump has threatened to impose a 10% tariff on Chinese goods to address issues such as the trafficking of chemicals linked to fentanyl production. His campaign rhetoric suggested potential tariffs exceeding 60%, presenting a considerable growth risk to China, the world’s leading goods exporter. Such impositions can significantly impact trade balances and unsettle an already weakened manufacturing sector which depends on global markets.
In light of these concerns, government advisors are urging a growth target of around 5.0% for the upcoming year, advocating for consumer-focused stimulus measures. Recent data indicates that household and business confidence remains subdued, contributing to an uncertain outlook, particularly within the housing market, critical for consumer spending.
Stabilizing the property sector is essential for rejuvenating domestic consumption in China. With around 70% of household savings tied up in real estate, revitalizing this market will be pivotal for improving sentiment among manufacturers and consumers alike. While the World Bank has upgraded its growth forecasts for China for 2024 and 2025, it posits that prevailing headwinds—especially in the real estate sector—will continue to exert downward pressure on economic growth in the immediate future.
As the economic landscape remains precarious, the upcoming release of the private sector Caixin PMI, scheduled for Thursday, could provide further insights into the underlying health of China’s manufacturing activities. Analysts predict a reading of 51.7, but whether this will translate into tangible improvement for the economy overall remains to be seen. The focus will be on how well China can navigate these compounding challenges in order to foster a sustainable recovery.
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