China PMI surprises with contracting factory activity in January; December industrial profits have increased

China’s factory activity unexpectedly contracted in January, reversing the expansionary momentum of the past three months, partly due to the slow season before the Lunar New Year.

The official purchasing managers’ index for January stood at 49.1, Data released by the National Statistics Office showed on Monday.

The reading was 50.1 compared to estimates in a Reuters poll. In December the PMI came in at 50.1, while in November it was 50.3. A PMI reading above the 50 threshold indicates expansion of activity, while one below indicates contraction.

January’s manufacturing PMI tends to be softer as migrant workers return to their hometowns ahead of Chinese New Year on Jan. 29, said Hui Shan, chief China economist at Goldman Sachs.

China’s non-manufacturing PMI, which measures services and construction activity, fell to 50.2 in January from 52.2 the previous month.

Separately, China’s industrial profits It was up 11% in December from a year earlier, growing for the first time since July.

Corporate profits have recovered from a steep 27% year-on-year decline in September – the biggest drop since March 2020 during the Covid-19 pandemic. They fell 7.3% year-on-year in November and 10% in October as the downturn in the real estate sector and a gloomy income outlook continued to weigh on consumer demand.

Industrial profits are a key indicator of the financial health of China’s factories, utilities and mines.

Full-year industrial profits in 2024 fell 3.3% from the previous year, marking the third consecutive year of declines.

The second largest economy in the world it met its official annual growth target last yearExpanding 5.0% as a wave of stimulus measures began. Economists stated industrial production growth outstripping retail salesunderlining the strength of the country’s supply, while domestic demand remained weak.

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