In a recent private-sector survey, it was revealed that China’s factory activity experienced growth in January. This expansion was attributed to stable output, improved logistics efficiency, and the first uptick in new export orders since June. Consequently, business confidence reached a nine-month high.

 

The positive results, however, contrasted with an official survey from the previous day, which indicated that manufacturing activity had contracted due to persistently weak demand. These mixed signals point to an economy that still requires additional policy support to perform optimally.

 

The Caixin/S&P Global manufacturing PMI remained at 50.8 in January, unchanged from December and exceeding analysts’ expectations of 50.6. The 50-point threshold marks the distinction between growth and contraction.

 

Wang Zhe, a senior economist at Caixin Insight Group, attributed the positive aspects to quicker logistics, increased procurement, and rising inventories, all of which reflected improved business confidence. However, Zhe also noted that employment figures remained in contraction, price levels were subdued, and deflationary pressures persisted.

 

China’s policymakers face a challenging task as they seek to rejuvenate the economy amidst a property market downturn, local government debt risks, deflationary pressures, and tepid overseas demand. The recent liquidation order against the debt-laden developer China Evergrande Group added to the woes of the crisis-hit property sector.

 

Despite these challenges, the Caixin survey offered some optimism by suggesting that external demand might be on the upswing, with new export orders showing a marginal increase, marking the first positive change since June of the previous year. The export index could have been influenced by the upcoming Lunar New Year, falling on February 10 this year, as factories and workers geared up for pre-holiday shipments. Additionally, expectations of stronger global demand, planned investments, new product releases, and efforts to expand into new markets boosted manufacturers’ confidence to its highest level since April of the previous year.

 

However, factories continued to reduce their workforce in January, while efforts to attract and secure new orders led to price cuts for their products. These deflationary pressures have prompted investor expectations for further monetary easing, following China’s recent deep cut to bank reserves to support the economy and stabilize the plunging stock market.