Chinese factory activity is expanding as export orders increase, research shows

Factories continued to reduce their workforce in January, while efforts to attract and secure new orders prompted them to cut the retail prices of their products | Photo: Bloomberg

China’s factory activity expanded in January on steady output growth, faster logistics and the first increase in new export orders since June, boosting business confidence to a nine-month high, a private sector survey showed on Thursday.

However, the positive result was in stark contrast to an official survey the day before, which showed industrial activity contracted again last month due to continued weak demand.

Taken together, they point to a continued underperforming economy that needs more policy support.

The Caixin/S&P Global Manufacturing PMI remained at 50.8 in January, unchanged from December and exceeding analyst expectations of 50.6. The figure of 50 points separates growth from shrinkage.

“Faster logistics, higher purchasing and rising inventories reflected improved business confidence,” said Wang Zhe, senior economist at Caixin Insight Group.

However, he noted that employment continued to shrink, price levels were subdued and “deflationary pressures persisted.”

Policymakers in China face a daunting task as they try to revive the economy in the face of a real estate downturn, local government debt risks, deflationary pressures and tepid foreign demand.

The crisis-hit real estate sector suffered another blow this week after a Hong Kong court ordered the liquidation of debt-laden developer China Evergrande Group.

But the Caixin survey offered some hope that external demand could start to improve as new export orders increase, albeit marginally, for the first time since June last year.

The export index may have been affected by the Lunar New Year, which falls on February 10 this year, as factories and workers prepared to ship goods ahead of the holiday season.

In addition, forecasts of stronger global demand, planned investments, new product introductions and efforts to expand into new markets pushed producer confidence to its highest level since April last year.

But factories continued to cut their workforces in January, while efforts to attract and secure new orders prompted them to cut the retail prices of their products.

Increased deflationary pressures have raised investor expectations for further monetary easing, after China last week announced a deep cut in bank reserves to support the economy and a slumping stock market.

First print: February 1, 2024 | 8:40 am IST