Workers making Care Bears at a factory in Ankang, China.
CNBC
China’s factory activity slowed in January as export orders dwindled ahead of additional U.S. tariffs that are set to come into effect Tuesday, a private-sector survey showed Monday.
The seasonally adjusted Caixin/S&P Global manufacturing purchasing manager’s index came in at 50.1 in January, missing Reuters poll forecast of 50.5.
Manufacturing PMI stayed above the 50 level that separates expansion from contraction for a fourth straight month, but it nudged down from 50.5 in December, 51.5 in November and 50.3 in October.
The private survey reading follows the official PMI data in January that showed activity unexpectedly contracted to 49.1, after expanding for three straight months, reinforcing calls for more stimulus to spur growth. Reuters had forecast PMI to come in at 50.1.
Domestic demand improved in Januray while new export orders fell for a second straight month, as overseas demand for consumer goods declined, according to the survey. The employment sub-index also slumped to the lowest level in nearly five years, as businesses remained cautious amid economic uncertainty.
Shipment orders have started to soften after exporters rushed to front-load them toward the end of last year, Lynn Song, chief China economist at LNG told CNBC. “This side is likely to remain under pressure in the coming months, particularly if the U.S. tariffs do indeed come into effect on Feb. 4.”
Domestic orders will need to “play a larger role in driving manufacturing in 2025, as we can see tariffs are starting to take effect,” he added.
U.S. President Donald Trump on Saturday signed executive orders to impose 10% tariffs on Chinese goods — 25% on Mexican and most Canadian imports — starting Tuesday.
On his first day in office last month, Trump ordered his administration to investigate Beijing’s compliance with a trade deal struck during his first presidency,.
“Rising uncertainty in international policies could worsen China’s export environment, posing significant challenges for the economy,” said Wang Zhe, senior economist at Caixin Insight Group.
The tariffs came as China’s economy has been battling a slowdown. While the country achieved Beijing’s full-year growth target of 5.0% last year, it still struggles to boost growth amid tepid domestic demand and a prolonged real estate downturn, leaving exports as a key driver of growth.
“The policies introduced since September 2024 have delivered tangible results,” said Wang. However, he cautioned that the effectiveness of stimulus measures, such as large-scale equipment upgrades and trade-in programs for consumer goods, might diminish this year.
Since Beijing introduced a flurry of policy support measures late last year, some sectors have seen economic activity stabilize, but markets are monitoring Beijing’s next policy steps as trade tensions with the U.S. will likely intensify.
Chinese authorities have pledged to make boosting domestic consumption a top priority and expanded their consumer goods trade-in program this year.
China’s Commerce Ministry said on Saturday it would challenge Trump’s tariff decision at the World Trade Organization, condemning the sweeping tariffs as a “serious violation of international trade rules.” Beijing will “take relevant countermeasures to firmly safeguard its own rights and interests,” the statement said, but stopped short of announcing specific plans for tariffs.