China's manufacturing activity growth slows as recovery remains bumpy

China’s manufacturing activity slowed its pace of expansion in December, as investors wait for more economic stimulus when Donald Trump — who is threatening tariffs on Chinese exports — returns to the White House.

 

The Caixin manufacturing purchasing managers index fell to 50.5 from 51.5 in November, according to a statement released by Caixin and S&P Global on Thursday. While any reading above 50 indicates an expansion of activity, the figure was a disappointment compared with the median forecast of 51.7 by economists.

 

“Exports dragged on demand amid mounting uncertainties stemming from the overseas economic environment and global trade,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement accompanying the release.

 

China’s 10-year government bond yields slid three basis points to 1.64 per cent, a fresh record low. The offshore yuan gained 0.2 per cent after the Chinese central bank set a strong fixing to support the currency. The benchmark CSI 300 index of onshore stocks fell as much as 1.6 per cent.

 

The findings reflect uncertainties facing Chinese exports, which have powered the $18 trillion economy’s uneven recovery but may take a hit when Trump takes office later this month. The US president-elect has threatened to impose steep tariffs that could decimate trade between the countries, potentially hurting the key growth driver.

 

The result of the private survey matched the official one released earlier this week showing manufacturing activity grew for a third month, albeit at a slower rate.

 

Falling export orders dampened overall sales and business optimism fell, according to Caixin. Chinese manufacturers cut prices to support sales, adding pressure on an economy already in its longest deflation streak since 1999.

 

What Bloomberg Economics Says... 

“Falling prices indicated by both surveys highlight the necessity of continuing policy support. We expect the government to step up fiscal support in 2025.”

 

— Chang Shu and David Qu

 

Chinese President Xi Jinping acknowledged new challenges from the external environment in a New Year’s Eve speech on Tuesday. Earlier that day, he said China is on track to meet its official growth target of about 5 per cent for 2024 and the economy was “overall stable.” 

 

On a more positive note, the official non-manufacturing PMI showed China’s services and construction activity expanded in December at the fastest pace in nine months, showing improved domestic demand after Beijing rolled out a stimulus blitz in late September.

 

Officials have pledged to use greater public borrowing and spending as well as monetary easing to spur growth in 2025. The next easing step could come from the People’s Bank of China, which has vowed to cut the amount of cash banks must hold in reserves and interest rates at an appropriate time.

 

The Caixin results have been largely stronger than those from the official poll over the previous year as exports stayed strong. The two surveys cover different sample sizes, locations and business types, with the private poll focusing on small and export-oriented firms.