China’s factory activity contracted in January for the first time in four months, as millions of workers began leaving assembly lines to travel home for the Lunar New Year holidays.
The National Bureau of Statistics reported that its purchasing managers’ index (PMI), based on a survey of factory managers, dropped to 49.1 in January from 50.1 in December. A PMI reading above 50 indicates expansion, while a reading below 50 signals contraction in activity. Both new orders and production also saw declines.
The PMI for the non-manufacturing sector, which includes construction and services, also fell, dropping from 52.2 in December to 50.2 in January. Zhao Qinghe, a senior statistician at the bureau, attributed the drop in factory activity to the approaching holidays, which are set to begin on Tuesday and last until February 4. This period marks China’s most significant festival, during which millions of people leave the cities to spend time with family, often distorting economic data early in the year.
China’s economy grew at a 5% annual pace in 2024, meeting the government’s target, fueled by strong exports and stimulus measures. Despite the slowdown in January, Zichun Huang of Capital Economics noted that activity is likely to pick up again due to government efforts. However, she cautioned that the disappointing PMI data highlights the challenges policymakers face in sustaining growth.
Huang also pointed to a decline in the PMI for construction, suggesting that fiscal support might not be enough to counter broader pressures on the sector. Additionally, the outlook for exports remains uncertain, given threats by US President Donald Trump to raise tariffs on Chinese imports.
