The Chinese economy faced a challenging start to the year, with the construction Purchasing Managers' Index (PMI) falling to a new low of 49.3 in January. This decline, influenced by adverse weather conditions and holiday disruptions, signals a contraction in the construction sector. Meanwhile, the official manufacturing PMI slipped to 49.1, retreating from 50.1 in December, marking a return to contractionary territory since October. In contrast, the services PMI slightly decreased to 50.3 after reaching 52.0 in December, indicating moderated growth in January.
The economic landscape in January was further complicated by international developments and domestic policy adjustments. US President Donald Trump's tariff announcements on imports from Canada, Mexico, and China placed downward pressure on the US Dollar. This weighed on global markets and contributed to a risk-averse atmosphere that favored gold as a safe-haven asset, pushing XAU/USD higher. Concurrently, the DXY index experienced a modest drop, while UST yields showed an uptick.
In response to fluctuations in international oil prices, China's National Development and Reform Commission (NDRC) adjusted domestic gasoline retail prices. This move is aligned with efforts to stabilize domestic markets amidst volatile global conditions.
China's tourism-related services witnessed an acceleration in January, bolstered by increased activity in railway transport, accommodation, and catering sectors. However, real-estate performance softened compared to December, as indicated by SME surveys and high-frequency data.
The broader economic data release for January remains limited, with only foreign exchange reserves, inflation, and monetary data expected this month. Analysts anticipate that FX reserves have remained relatively stable. Inflation figures are projected to edge up to 0.5% year-on-year in January from 0.1% in December.
Standard Chartered's economists noted a divergence within manufacturing sectors:
"Only the equipment manufacturing PMI stayed above 50 in January, while hi-tech, consumer goods and high-energy-consuming manufacturing PMIs fell below 50."
This highlights sectoral shifts within China's manufacturing landscape amid broader economic challenges.
Looking ahead, China's trade and real activity data for January and February will be combined and released in March to account for the effects of the Lunar New Year holiday. This approach aims to provide a clearer picture of economic trends without the distortions that typically accompany seasonal adjustments.