China’s services activity expanded at the fastest pace in nine months while the manufacturing sector grew for a third straight month, signaling improving domestic demand after Beijing’s stimulus blitz.
The official non-manufacturing purchasing managers’ index rose to 52.2 in December, significantly higher than forecast. The gauge for manufacturing activity was 50.1, above the 50-mark separating growth from contraction and marking the longest streak of expansion since March last year.
“The growth-supportive measures pledged in the last few months seem to be yielding. The momentum appears to have stabilized,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group.
The offshore yuan pared a gain of 0.1% to be little changed, tracking the dollar. The 10-year government bond yield dropped three basis points to 1.68% as investors bet on more monetary easing ahead.
The data released on Tuesday adds to tentative signs that the world’s No. 2 economy is recovering after authorities announced a raft of stimulus measures in late September. The broad uptick in activity would be welcomed by policymakers seeking to bolster domestic demand to offset the effects of a potential trade war with the incoming Trump administration, although economists warn the boost may be short-lived.
“Increased policy support toward the end of the year has clearly provided a near-term boost to growth,” Gabriel Ng, assistant economist at Capital Economics, said in a note.
“But the boost probably won’t last more than a few quarters, with Trump likely to follow through on his tariff threat next year and persistent structural imbalances still weighing on the economy,” he said.
The growth in services activity was driven by strong momentum in sectors including transportation, telecommunications and financial services, according to the data by the National Bureau of Statistics. Meanwhile, catering and hospitality industry activity shrank.
New orders for the construction industry expanded for the first time this year, reflecting increased activity as companies rushed to build projects ahead of the Lunar New Year holiday starting in late January, according to the NBS. This likely benefited from the government’s increased bond sales and spending on infrastructure in recent months.
The factory sector also saw an improvement in demand, with a measure of new orders picking up at the fastest pace in eight months. Manufacturers were helped by government subsidies for appliances and cars as well as front-loaded shipments to avoid any new US tariffs.
“Corporate production and operation activities accelerated in December, and the economy’s momentum extended a trend of rebounding and improving,” NBS senior statistician Zhao Qinghe said in a statement accompanying the data.
Boosting domestic demand will be especially important as President-elect Donald Trump has threatened steep levies on Chinese exports, which have been a key driver of growth in 2023. Officials have vowed to sharply expand the subsidy program next year in addition to further monetary easing.
Chinese consumer and retail stocks rose on Tuesday after the Ministry of Commerce held a video conference to push officials to take “immediate action” to boost the industry and expand domestic demand. The move came after China’s retail sales growth unexpectedly weakened in November, highlighting the struggle to lift sentiment.
Top officials led by President Xi Jinping earlier this month elevated boosting consumption and domestic demand the top priority for economic work next year, only the second time in at least a decade. They listed a few areas of focus including helping lower-income groups and improving the social safety net, although Chinese leaders have yet to provide details of their plans.
