In January, China's factory activity unexpectedly contracted, reversing the expansionary trend observed in the preceding months. The official purchasing managers' index (PMI) for January slipped to 49.1, indicating a contraction in manufacturing activities. This reading fell short of Reuters poll estimates of 50.1 and marked a decline from December's PMI of 50.1 and November's 50.3. Meanwhile, industrial profits surged by 11% in December year-on-year, offering a glimpse into the financial health of factories, utilities, and mines.
The non-manufacturing PMI, which includes services and construction activities, also experienced a downturn, dropping to 50.2 in January from 52.2 in December. The PMI readings serve as vital indicators of economic activity, with values above 50 signifying expansion and those below indicating contraction.
Despite the contraction in January's factory activity, the world's second-largest economy managed to achieve its official annual growth target last year, expanding by 5.0%. This growth was bolstered by an array of stimulus measures aimed at revitalizing economic activities. However, the manufacturing PMI tends to soften in January as migrant workers return home for the Chinese New Year celebrations.
In addition to the monthly fluctuations, China's full-year industrial profits in 2024 fell by 3.3% compared to the previous year. This decline was an improvement on the 4.7% drop recorded year-on-year during the first eleven months of last year. Notably, corporate profits have been on a recovery path after plummeting by a sharp 27% year-on-year in September, marking their steepest fall since March 2020 during the COVID-19 pandemic.
Industrial profits are a crucial measure of the financial well-being of China's key sectors, including factories, utilities, and mines. As these sectors navigate fluctuating economic conditions, the latest data highlights both challenges and areas of improvement within the Chinese economy.