China's Manufacturing PMI Returns to Growth Territory After Eight-Month Decline
China's manufacturing PMI rose to 50.1 in December from 49.2 in November, ending eight months of contraction driven by domestic orders and pre-holiday stockpiling. Production and new orders reached their strongest levels since March 2024, though export orders remained weak at 49.0. The recovery comes amid broader economic challenges, including a 13.1% year-on-year decline in industrial profits in November and ongoing efforts to rebalance the economy toward domestic consumption.
*this image is generated using AI for illustrative purposes only.
China's manufacturing sector showed unexpected resilience in December 2024, with factory activity returning to growth territory after eight consecutive months of decline. The recovery was primarily driven by increased domestic orders and seasonal stockpiling as the country prepares for Lunar New Year celebrations.
Manufacturing PMI Shows Strong Recovery
The official purchasing managers' index demonstrated a significant turnaround in December, surpassing economist expectations and market forecasts.
| Metric: | December 2024 | November 2024 | Forecast |
|---|---|---|---|
| Official PMI: | 50.1 | 49.2 | 49.2 |
| Production Sub-index: | 51.7 | 50.0 | - |
| New Orders: | 50.8 | 49.2 | - |
| New Export Orders: | 49.0 | 47.6 | - |
The National Bureau of Statistics survey showed the PMI crossed the critical 50-point threshold that separates growth from contraction, beating Reuters poll forecasts. This marked the first expansion since the index began declining eight months ago.
Domestic Demand Drives Growth
The December improvement was largely attributed to stronger domestic activity rather than international demand. Production expectations reached 55.5, the highest reading since March 2024, while supplier delivery times also showed improvement. NBS statistician Huo Lihui noted that confidence appeared to be improving due to pre-holiday stockpiling, particularly in agricultural, food processing, and beverage sectors.
A separate private-sector PMI also confirmed marginal expansion in December, reinforcing the trend toward domestic demand-driven growth. However, new export orders remained below the growth threshold at 49.0, though this represented an improvement from November's 47.6.
Broader Economic Challenges Persist
Despite the manufacturing recovery, China faces significant economic headwinds that continue to pressure overall growth. Industrial firms reported a 13.1% year-on-year profit decline in November, marking the steepest drop in over a year. This decline suggests that consumer spending has not adequately compensated for weakening global demand.
The non-manufacturing PMI, covering services and construction, registered 50.2 in December after contracting in November for the first time in nearly three years. The composite PMI of both manufacturing and non-manufacturing sectors reached 50.7, up from November's 49.7.
Policy Implications and Economic Rebalancing
The manufacturing rebound provides some optimism for policymakers who chose to avoid major additional stimulus measures while targeting around 5% full-year growth. However, the data highlights the ongoing challenge of rebalancing China's production-driven economic model toward greater domestic consumption.
President Xi Jinping acknowledged in a December article in Qiushi Journal that there was "overall capacity excess" and emphasized that "ultimately consumption is the sustainable driver of economic growth." This represents a shift from previous positions that rejected "overcapacity" criticisms from Western governments.
Authorities have responded by implementing measures to address production imbalances, including crackdowns on price wars, production pruning in certain sectors, and enhanced "anti-involution" efforts. The ruling Communist Party leadership has also promised to boost income and stimulate consumption, though similar past pledges have faced implementation challenges.
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