China's Factory Activity Likely Expanded in January, Defying Tariff Pressures
China's manufacturing sector is expected to have maintained its expansionary trend in January, underscoring the resilience of the world's second-largest economy. A Reuters poll of economists projects the official Purchasing Managers' Index (PMI) to remain at 50.1, mirroring December's level and indicating ongoing growth.
Despite hitting the government's growth target of "around 5%" in 2024, China's economy exhibited imbalances, with exports and industrial output outperforming retail sales and unemployment remaining elevated.
President Donald Trump's looming 10% tariff on Chinese imports raises concerns about China's export-driven growth model. The country's trade surplus reached nearly $1 trillion last year, fueled by producers seeking overseas markets amidst weak domestic demand. Factory deflation and a weaker yuan have also enhanced the competitiveness of Chinese goods globally.
However, these headwinds have eroded corporate profits and income. While policymakers have promised stimulus measures in 2025, analysts express skepticism that these will primarily target households, potentially exacerbating overcapacity, dampening consumption, and intensifying deflationary pressures.
Despite pledges to prioritize domestic demand, Beijing has not outlined concrete measures beyond an expanded trade-in program subsidizing purchases of goods. Policy support for the struggling property sector aims to stimulate demand and alleviate developers' financial difficulties, which heavily impact local government finances.
Encouraging Chinese consumers to increase spending would mitigate the impact of Trump's tariff threats, which he previously suggested could reach 60%. A separate Reuters poll indicates that the private sector Caixin PMI is expected to hold steady at 50.5. The results will be released on February 3.