^{Photo: South China Morning Post}

China’s Factory Activity Struggles to Break Out of Contraction

China’s latest economic indicators reveal a mixed and uneven recovery, with factory activity inching upward in November but still failing to cross into expansion territory. Official data showed the manufacturing purchasing managers’ index rising to 49.2, an increase of 0.2 points from October, marking the eighth straight month below the expansion threshold of 50. While the reading aligned with expectations, it highlighted persistent pressure on manufacturers navigating soft domestic demand, elevated input costs, and the lingering effects of global trade tensions.

Non-manufacturing activity also softened, with the services and construction PMI dropping to 49.5. The composite PMI slipped to 49.7, underscoring a slowdown across both industrial and service sectors as the temporary lift from China’s Golden Week holiday dissipated. The early-October holiday traditionally boosts tourism, retail, and transport, but activity normalized quickly in the weeks that followed.

Manufacturing Sees Pockets of Strength Amid Broad Weakness

Despite the overall contraction, several segments within manufacturing displayed resilience. High-tech manufacturing, a priority sector in Beijing’s long-term industrial strategy, expanded for the tenth consecutive month with a reading of 50.1. This growth was driven by electronics, precision equipment, and aerospace supplies, where business confidence exceeded 57, signaling strong expectations for future output.

The production index touched the neutral 50 mark, while new orders improved to 49.2, indicating slightly firmer demand. Energy-intensive industries such as chemicals and metals posted a modest recovery at 48.4 after months of weakness. Small enterprises recorded the most significant rebound, with their PMI jumping to 49.1, the highest in nearly half a year. Medium-sized manufacturers rose to 48.9, while large firms slipped to 49.3, reflecting pressure on heavy industry and export-oriented giants.

Sentiment across the sector improved marginally. The index tracking expectations for production and operations climbed to 53.1, suggesting that companies anticipate steadier conditions moving into early next year, especially in aviation components, non-ferrous metals, and specialized equipment.

Services Slow as Holiday Boost Wears Off

Services, which account for over half of China’s economic output, were the primary drag on November’s performance. Activity dropped to 49.5 as hospitality, retail, leisure, and travel-related industries experienced a pullback from their holiday-driven surge. The slowdown was sharpest in consumer-facing categories still grappling with weak household confidence and cautious discretionary spending.

However, several service segments continued to outperform the broader economy. Telecommunications, broadcasting, satellite services, and financial industries all posted PMIs above 55, signaling solid expansion. The construction sector held its ground at 49.6, supported by stronger expectations for near-term projects, with its sentiment index rising to 57.9.

Real estate and residential services remained firmly in contraction. The sector, long a critical pillar of China’s growth model, continues to grapple with a prolonged downturn that has weakened demand for housing-related services, materials, and construction supply chains.

New orders in non-manufacturing industries slid to 45.7, showing ongoing demand softness. Input costs rose to 50.4, while sales prices in services saw a narrower decline, suggesting some stabilization in pricing power.

Labor, Logistics, and Survey Scale

Employment improved slightly, with manufacturing jobs rising to 48.4 and non-manufacturing employment inching up to 45.3, though both remain below expansion levels. Supplier delivery times improved to 50.1, reflecting smoother logistics and fewer supply-chain bottlenecks compared to last year.

The PMI data, derived from surveys of more than 3,200 manufacturing firms and 4,300 non-manufacturing companies, remain a key gauge of China’s real-time economic trajectory. The indicators are seasonally adjusted and closely watched by global markets for signals on global trade, commodity demand, and industrial output.

Trade Pressures and Broader Economic Headwinds

China’s manufacturing slump has persisted since April, coinciding with heightened U.S. trade actions earlier this year. New tariffs introduced by Washington placed additional pressure on exporters, triggering a 5.5 percent drop in industrial profits in October—the sharpest decline since June. Profit growth for major industrial firms over the first ten months slowed to 1.9 percent, reflecting the mounting strain.

China’s overall economic momentum has eased, with third-quarter growth at 4.8 percent as weak domestic consumption, a deepening property downturn, and cautious corporate spending weighed on activity. Although the U.S. and China reached a temporary trade compromise in late October—reducing fentanyl-linked tariffs, pausing rare-earth restrictions, and reopening agricultural trade—the broader recovery remains fragile.

Homegrown demand continues to be underwhelming. Real estate troubles and uneven job market conditions have kept households cautious. Policymakers have reiterated their commitment to long-term structural upgrades, focusing on consumption, advanced manufacturing, and technological independence. However, Beijing has resisted launching large-scale stimulus, pointing instead to a gradual path of recovery that keeps the economy on track for its 5 percent annual growth goal.