China's manufacturing sector loses momentum, factory activity growth slows down
What's the story
China's manufacturing sector saw a slowdown in its expansion rate in December 2024, the Caixin manufacturing purchasing managers index revealed. The index fell to 50.5 from November's 51.5, missing economists' median prediction of 51.7. Although the decline indicates a slower pace of growth, any number above 50 still indicates an increase in activity within the sector.
Trade challenges
Global trade uncertainties impact China's manufacturing sector
The slowdown in China's manufacturing growth is mainly due to a decline in export demand, amid rising uncertainties in the global economic and trade environment. This was noted by Wang Zhe, a senior economist at Caixin Insight Group. He said that "exports dragged on demand amid mounting uncertainties stemming from the overseas economic environment and global trade."
Market response
Market reactions and future concerns for China's economy
In reaction to the slowdown, China's 10-year government bond yields dropped three basis points to a record low of 1.64%. Meanwhile, the offshore yuan rose slightly by 0.2% after the Chinese central bank intervened. However, the CSI 300 index of onshore stocks fell as much as 1.6%. These market reactions highlight fears of further hurdles for China's $18 trillion economy, especially its export sector which has been key to its uneven recovery.
Economic pressure
Impact of falling export orders and price cuts
The fall in export orders has resulted in a dip in overall sales, which has further dampened business optimism. To combat this, Chinese manufacturers have turned to price cuts to boost sales. This has further added to the pressure on an economy which is already witnessing its longest deflation streak since 1999.
Future prospects
China's economic outlook and stimulus measures
Despite these challenges, Chinese President Xi Jinping remains optimistic about the country's economic future. In his New Year's Eve speech, he said China is on track to meet its official growth target of around 5% for 2024. He described the economy as "overall stable." The non-manufacturing PMI showed services and construction activity expanded at their fastest pace in nine months in December 2024, indicating improved domestic demand after a stimulus blitz in late September.