China’s manufacturing sector continued its recovery in November, with activity among smaller manufacturers expanding at the fastest pace in five months. According to the Caixin/S&P Global manufacturing purchasing managers’ index (PMI), released on Monday, the PMI reading climbed to 51.5, surpassing market expectations of 50.5 and the critical 50-point threshold that separates growth from contraction. This marked the second consecutive month of expansion in the sector.
Key Drivers of Growth
The uptick in the PMI was driven by strong new business inflows, which rose at their fastest pace in over three years. A renewed increase in export orders also contributed to the improvement, signaling that recent government stimulus measures are beginning to take effect.
“Central to the latest advancement in manufacturing sector conditions was greater new business inflows,” said Wang Zhe, senior economist at Caixin Insight Group. He highlighted that both domestic demand and export growth played a pivotal role in lifting the overall reading.
This private survey primarily focuses on small- and medium-sized enterprises (SMEs) and private sector firms, offering a different perspective from the official PMI, which typically surveys larger, state-owned enterprises. The official PMI, released on Saturday, also showed expansion, rising to 50.3 in November from 50.1 in October, slightly above analysts’ expectations of 50.2.
Stimulus Measures Begin to Show Results
China’s economy has been under pressure in 2024, battling a sluggish real estate sector, weak consumer sentiment, and external geopolitical challenges. However, recent stimulus measures introduced by the government appear to have started stabilizing the manufacturing sector. These measures include:
- Lowering the Reserve Requirement Ratio (RRR): The People’s Bank of China reduced the RRR by 50 basis points, increasing liquidity in the financial system.
- Increased Fiscal Spending: The government has committed to boosting fiscal spending and stabilizing the struggling property sector.
- Debt Management Plan: Early in November, China unveiled a 10 trillion yuan ($1.4 trillion) five-year plan to address local government debt issues.
According to Gary Ng, senior economist at Natixis, the PMI improvement is an “early sign of stabilization” in China’s manufacturing sector. However, he cautioned that a sustained recovery will require better consumer and business sentiment, as well as further improvements in the real estate market.
Challenges Ahead
Despite the positive PMI readings, challenges remain for China’s economy. Investment in the real estate sector from January to October fell by 10.3% year-over-year, and industrial profits declined by 10% in October, marking the third consecutive month of contraction. External factors, such as geopolitical tensions and trade uncertainties, also pose risks.
With Donald Trump’s 2024 presidential victory, concerns over potential increased tariffs on Chinese goods have resurfaced. While this has driven a temporary spike in export orders as U.S. companies rush to beat potential tariffs, the long-term impact on China’s export sector could be negative.
“Price wars and tariffs can still be risks in 2025,” said Ng, highlighting the fierce competition among Chinese manufacturers and the uncertain global trade environment.
Outlook for 2024 and Beyond
China’s economy has shown early signs of recovery, supported by stimulus measures and improving retail sales in October. However, sustained growth will depend on the government’s ability to address structural challenges, particularly in the real estate sector.
“The uptick is an early sign of stabilization,” Ng noted, adding that additional fiscal spending and improved sentiment will be key to ensuring a more robust and persistent rebound.
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