Official data: China factory activity returns to contraction as domestic demand falters

China’s manufacturing sector swung back into contraction in January, snapping a brief month of expansion as weak domestic demand and seasonal lulls dragged production lower at the start of the new year. The official manufacturing purchasing managers’ index (PMI) fell to 49.3 in January from 50.1 in December, data from the National Bureau of Statistics (NBS) showed. 

The reading missed analyst forecasts of 50.0 and returned below the critical 50-point threshold that separates expansion from contraction. Momentum reversed sharply across key demand indicators. 

The new orders sub-index dropped to 49.2 from 50.8 in December, erasing the previous month's gains. External headwinds also intensified, with the new export orders sub-index sliding to 47.8 from 49.0, reflecting continued pressure from global trade frictions and protectionist measures. 

Analysts noted that the pullback was partially driven by seasonal factors, as manufacturers traditionally enter a slower operational period in January ahead of the Lunar New Year. However, field experts acknowledged that market demand remains weak, pointing to structural softness beyond just seasonal volatility. 

The non-manufacturing PMI, covering services and construction, fell to 49.4 from 50.2 in December. This marks the lowest reading since December 2022, signalling that the post-pandemic recovery in services consumption is facing renewed strain. 

Despite the world’s second-largest economy hitting its official 5% growth target last year—underpinned by resilient exports defying US tariff pressures—deep-seated imbalances persist. Retail sales data indicate that household spending weakened further in the final quarter of 2025, dragging GDP growth to a three-year low. 

Policymakers have ramped up efforts to stabilise the economy, front-loading 62.5 billion yuan ($8.99 billion) from ultra-long special treasury bonds to fund subsidies for consumer goods ranging from smartphones to home appliances. The central bank has also signalled room for further reductions in the reserve requirement ratio (RRR) and broader rate cuts this year. 

Written by: Aiman Haikal