China January PMI slips into contraction as weak demand clouds early-2026 growth outlook
2026-02-01 21:13:00
China’s January PMI data point to a soft start to 2026, with weak domestic demand offsetting pockets of resilience in high-tech manufacturing.
Summary:
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China’s official manufacturing PMI slipped back into contraction in January, underscoring persistent domestic demand weakness at the start of 2026.
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Services and construction activity also fell into contraction, marking the weakest non-manufacturing reading since late 2022.
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New orders and export orders both deteriorated, signalling fragile momentum beyond seasonal effects.
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Policymakers are accelerating targeted fiscal and monetary support, but confidence in a rapid demand rebound remains limited.
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Official optimism around high-tech and export resilience contrasts with softer consumption and property-sector stress.
China’s economy showed renewed signs of strain at the start of the year, with official January PMI data highlighting a loss of momentum across both manufacturing and services. Factory activity slipped back into contraction territory, while the non-manufacturing sector recorded its weakest reading since late 2022, reinforcing concerns that domestic demand remains fragile despite ongoing policy support.
The official manufacturing PMI fell to 49.3 in January from 50.1 previously, undershooting market expectations and marking a clear reversal from December’s marginal expansion. The deterioration was broad-based. New orders dropped back below the 50 threshold, while export orders weakened further, pointing to subdued demand conditions both at home and abroad. Production was relatively more resilient, but not enough to offset the drag from softer demand indicators.
The non-manufacturing PMI, which captures services and construction, also declined sharply to 49.4. This suggests that post-holiday spending failed to provide a meaningful lift, with cautious consumers and ongoing property-sector stress weighing on activity. Together, the PMI readings point to an economy struggling to generate self-sustaining momentum at the start of 2026.
Chinese officials have emphasised seasonal distortions around the (yet to come holiday) Lunar New Year, and state media has highlighted pockets of resilience, particularly in high-tech and equipment manufacturing. Some segments linked to advanced manufacturing and exports remain in expansion, supported by external demand for technology-related goods. Business sentiment indicators also suggest firms are cautiously optimistic about the months ahead.
However, this optimism sits uneasily alongside softer consumption trends. Retail sales weakened into the end of last year, pulling quarterly GDP growth to its slowest pace in three years, and policymakers are increasingly focused on stimulating household demand rather than simply expanding supply. Recent measures include front-loaded fiscal spending, consumer trade-in subsidies, and targeted rate cuts, alongside signals that broader reserve-requirement and interest-rate reductions remain on the table.
Looking ahead, authorities are expected to balance near-term growth support with longer-term structural goals, including technological self-reliance and services-sector expansion. While China is likely to set a 2026 growth target in the 4.5–5% range, the January PMI data underline that achieving the upper end of that range will require more forceful and coordinated policy action in coming months.
