The Chinese economy and factory activity expanded modestly for the second consecutive month in November, bolstered by government stimulus measures. The official Purchasing Managers’ Index (PMI) released by the National Bureau of Statistics (NBS) rose to 50.3—a seven-month high—up from 50.1 in October, surpassing the 50-point threshold that separates growth from contraction.
However, the recovery faces significant external pressures, particularly from escalating trade threats by U.S. President-elect Donald Trump, who has vowed to impose additional tariffs on Chinese goods.
The modest improvement in factory activity reflects the early effects of a series of aggressive fiscal and monetary stimulus measures introduced by Chinese policymakers. These efforts, including a 10 trillion yuan ($1.38 trillion) debt package unveiled earlier this month and the largest central bank stimulus since the pandemic, aim to support struggling industries, stabilize the property market, and boost consumer confidence.
“The economy stabilized recently as fiscal and monetary policies eased after the Politburo meeting on September 26,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management. However, Zhang noted that uncertainties around future investment decisions and fiscal stimulus size remain a concern.
A breakdown of the PMI data reveals encouraging signs. Total new orders rose for the first time in seven months, reflecting a pickup in domestic demand. However, new export orders contracted for the seventh consecutive month, underscoring the challenges China faces in the global trade environment.
“The PMI index continued to rise in November, indicating more obvious signs of recovery at the bottom of the economy,” said Zhang Liqun, an analyst at the China Logistics Information Center. “The effect of policies in boosting business confidence is becoming stronger.” Despite this, Zhang highlighted insufficient demand as a major constraint on production activity, emphasizing the need for further government investment.
While China’s economic stabilization is a welcome development, it faces renewed external headwinds from the United States. President-elect Donald Trump has pledged to impose a 10% tariff on Chinese goods, citing concerns over Beijing’s role in the trafficking of chemicals used in fentanyl production. Trump has also threatened to raise tariffs to as much as 60%, a move that could severely impact China’s industrial sector.
China’s export performance, which surged unexpectedly in October, may reflect factories’ attempts to front-load shipments in anticipation of future tariff hikes. Analysts warn that the uncertainty surrounding U.S.-China trade relations will weigh heavily on business sentiment and investment.
“The trade war is looming, and it will delay investment decisions by corporates,” Zhang Zhiwei said. “The investors expect fiscal stimulus, but the size and composition of spending are uncertain.”
The property market, a critical component of China’s domestic economy, has been a significant drag on growth this year. Sluggish sales and a cascade of developer defaults have shaken the sector, prompting government interventions to ease financing strains.
There are tentative signs that the sector may be stabilizing. Property sales declines narrowed last month, hinting at a potential recovery. Retail sales, another indicator of consumer confidence, grew at their fastest pace since February, suggesting that the broader economy could be turning a corner.
Despite these glimmers of hope, industrial output slowed slightly in October, and industrial profits—a lagging indicator—continued to decline, reflecting the challenges firms face in maintaining profitability. The non-manufacturing PMI, which tracks the services and construction sectors, fell to 50.0 in November from 50.2 in October, indicating stagnation in these areas.
As Chinese policymakers prepare for the central economic working conference in December, the path forward remains uncertain. Policy advisers are advocating for the government to maintain its growth target of around 5% for 2024 and to implement additional stimulus measures to support domestic demand.
“Chinese policy advisers recommend that Beijing maintain the same growth target next year and introduce more stimulus to bolster demand,” said a senior policy analyst. The scope of these measures will be closely watched by global investors and businesses.
China’s economic trajectory has far-reaching implications for global markets. As the world’s top exporter of goods, any disruption in China’s manufacturing sector could ripple across supply chains and affect global economic growth. The ongoing trade tensions with the U.S. add an extra layer of complexity, with analysts warning of potential volatility in global markets if tariffs escalate.
The private-sector Caixin factory survey, due for release on Monday, is expected to provide further insights into China’s manufacturing performance. Analysts predict a slight improvement in the reading to 50.5, consistent with the official PMI data.
