China’s Manufacturing PMI Expands for the Third Consecutive Month in December

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The National Bureau of Statistics of China released its December Purchasing Managers’ Index (PMI) report, indicating that the manufacturing PMI expanded for the third consecutive month. This growth was driven by the dual effects of the “Two New Policies”—large-scale equipment upgrades and consumer goods trade-in programs—as well as a rush in exports. However, detailed data suggest that the expansion in demand may be a short-term effect.

Manufacturing

China’s manufacturing PMI for December came in at 50.1, a slight decline of 0.2 percentage points from the previous month and slightly below market expectations of 50.3. Among the sub-indices, the production index dipped by 0.3 percentage points to 52.1, while the new orders index rose by 0.2 percentage points to 51.0.

The supplier delivery time index continued to expand, rising 0.7 percentage points to 50.9. However, raw material inventories remained in contraction, edging up only 0.1 percentage points to 48.3. Similarly, the employment index stayed in contraction territory, slipping 0.1 percentage points to 48.3.

Other indices showed mixed results: the new export orders index increased by 0.2 percentage points to 48.3, reflecting continued export demand, while price indices fell. Input prices dropped to 48.2 (from 49.8), and output prices decreased to 46.7 (from 47.7). Business expectations remained in expansion but dipped slightly by 0.6 percentage points to 53.3.

Overall, the manufacturing sector benefited from supportive policies and export rushes ahead of potential U.S. tariff changes, with production and new orders sustaining expansion. However, internal demand improvements were limited, as indicated by weak inventory levels and the new orders minus finished goods inventory decline to 3.1 (prior 3.4). Soft hiring and falling output prices also suggest that the expansion may primarily reflect short-term boosts rather than sustained domestic demand recovery.

Non-Manufacturing

In the non-manufacturing sector, the non-manufacturing PMI for December stood at 52.2, a significant increase of 2.2 percentage points from the previous month. Breaking down by sub-sectors, the business activity index for the construction industry rose sharply by 3.5 percentage points to 53.2, reflecting accelerated construction progress by some firms ahead of the Lunar New Year holiday.

Meanwhile, the business activity index for the services sector increased by 1.9 percentage points to 52.0. However, performance varied across industries. Indices for transportation, communications, and finance exceeded 55, while sectors such as catering, accommodation, and resident services remained in contraction territory.

In other sub-indices, the new orders index rose significantly by 2.8 percentage points to 48.7, reflecting increased construction demand ahead of the Lunar New Year, with the new orders index for the construction sector jumping 7.9 percentage points to 51.4. In contrast, the services sector saw a modest increase of 1.8 percentage points, remaining in contraction territory at 48.2.

Input prices continued to rise, entering expansion territory at 50.5 (prior: 49.1), but sales prices stayed in contraction at 48.8, highlighting weak demand and intensifying market competition, which made it difficult for businesses to pass on costs.

Meanwhile, employment conditions mirrored those in the manufacturing sector. The employment index edged up slightly by 0.4 percentage points to 45.8, indicating that businesses remain cautious about future demand.

Overall, while the services sector expanded further in December, disparities among industries were evident. The increase was mainly driven by construction activity due to pre-holiday demand, but the services sector’s new orders index remained in contraction, signaling weak domestic demand recovery.

Additionally, in an environment of subdued demand and heightened competition, the rise in input prices was not matched by an increase in sales prices, underscoring businesses’ struggles to transfer cost pressures. The persistently low employment index further reflects limited confidence in future demand, raising concerns about the sustainability of demand expansion, similar to challenges in the manufacturing sector.