China’s economic activity unexpectedly contracted in January 2025, marking a challenging start to the year for the world’s second-largest economy. Official data from the National Bureau of Statistics revealed that the manufacturing Purchasing Managers’ Index (PMI) fell to 49.1, dipping below the 50-point threshold that separates expansion from contraction. This result missed a media poll estimate of 50.1 and ended three consecutive months of growth.
The contraction coincided with a seasonal slowdown as many workers left for the Lunar New Year holidays, but analysts noted that the decline was sharper than anticipated. Hui Shan, chief China economist at Goldman Sachs, attributed some of the softness to the pre-holiday period but added that the extent of the slowdown underscored broader economic vulnerabilities. Non-manufacturing activity, which measures services and construction, also weakened, with the index falling to 50.2 from 52.2 in December.
While the services sector remained buoyed by holiday-driven demand in areas such as transportation and hospitality, the construction PMI declined to 49.3, signaling contraction. Zhao Qinghe, a senior statistician at the National Bureau of Statistics, acknowledged that while some price sub-indices for raw materials improved slightly, overall production and new orders reached a five-month low. Export orders were particularly weak, with a sub-index dropping to its lowest level since February 2024, reflecting subdued global demand and uncertainties over trade tensions with the United States.
Adding to the economic concerns, China’s industrial profits fell 3.3% in 2024, marking a third consecutive year of declines. December provided a brief respite with an 11% year-on-year profit increase, driven by policy incentives and a rebound in consumer goods manufacturing. However, the broader picture remained challenging, as a sluggish real estate sector and weak domestic consumption continued to weigh on overall growth.
Economists warn that further stimulus measures may be required to stabilize the economy. Zichuan Huang, an economist at Capital Economics, noted that without stronger fiscal and monetary support, sustaining recovery could prove difficult. The government has indicated plans to adopt more supportive policies in 2025, including increased public spending and possible interest rate cuts, though the scale of these measures remains uncertain.
External factors also loom large. U.S. President Donald Trump has threatened additional tariffs on Chinese goods, a move that could exacerbate export challenges. Chinese exporters have been front-loading shipments in anticipation of these levies, further complicating the outlook for the country’s trade sector. China managed to meet its 5% growth target in 2024, largely supported by exports and late-year stimulus measures. However, the uneven recovery characterized by weak domestic demand and structural challenges suggests that achieving similar results in 2025 will require more aggressive policy interventions. – By MENA Newswire News Desk.