China PMI surprise as factory activity contracts in January; December business profits jump

China's factory activity in January ended an unexpected contract, reversing the expansionary trend of the past three months, partly due to a slow season ahead of the Lunar New Year.

The official purchasing managers' index for January came in at 49.1, data published by the National Bureau of Statistics appeared on Monday.

The reading fell short of Reuters poll estimates of 50.1. PMI in December came in at 50.1, and in November it was 50.3. A PMI reading above the 50 threshold indicates an expansion in activity, and one below that indicates a contraction.

The January manufacturing PMI is likely to be softer, as migrant workers return to their hometowns ahead of the Chinese New Year, which falls on January 29, said Hui Shan, China's chief economist. at Goldman Sachs.

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

Separately, China's business profits it jumped 11% in December from a year earlier, growing for the first time since July.

Corporate profits have been recovering from a sharp 27% year-on-year fall in September – their steepest drop since March 2020 due to the Covid-19 pandemic. They had fallen 7.3% last year in November and 10% in October, as a downturn in the property sector and gloomy income expectations continued to weigh on consumer demand.

Business profits are a key indicator of the financial health of factories, utilities and mines in China.

Full-year business profits in 2024 fell 3.3% from the previous year, extending the decline for a third year in a row.

The second largest economy in the world we met the official annual growth target last yearexpanding 5.0%, as a barrage of stimulus measures began. business output growth is higher than retail salesreinforcing the strength of the country's supply side while domestic demand remained weak.

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