BEIJING (Reuters) – China’s factory activity likely expanded for a fourth month in January, highlighting the supply-side strength of the world’s No.2 economy, which is bracing for U.S. tariff hikes that could further weaken domestic demand and fuel deflationary pressures.
A Reuters poll of 18 economists forecast the official purchasing managers’ index remained at 50.1, matching December’s reading and staying above the 50-point threshold that separates growth from contraction in activity.
China’s $18 trillion economy hit the government’s growth target of “around 5%” over 2024 but in a lopsided fashion, with exports and industrial output far outpacing retail sales, and a persistently elevated unemployment rate.
U.S. President Donald Trump’s threat to impose a 10% punitive duty on Chinese imports on Feb. 1 to push Beijing to do more on trafficking of the chemical precursors of fentanyl risks exposing how reliant China’s economy is on exports for growth.
China’s trade surplus reached almost $1 trillion last year, as producers looked to shift stocks overseas to counter weak domestic demand. The country’s outbound shipments were further assisted by factory gate deflation and a weak yuan, making Chinese goods more competitive in global markets.
But back at home, falling prices ripped into corporate profits and workers’ incomes.
Policymakers have pledged to roll out further stimulus over 2025, but analysts worry it will remain focused on industrial upgrades and infrastructure, rather than households, which could worsen overcapacity in factories, weaken consumption and increase deflationary pressures.
Beijing has pledged to prioritise revitalising domestic demand, but has revealed little apart from a recently-expanded trade-in programme that subsidises purchases of cars, appliances and other goods.
Chinese leaders are also hoping policy support measures late last year will increase demand in the struggling property sector and ease developers’ financial difficulties, which significantly impacts domestic demand and local government finances.
Getting Chinese consumers spending again would reduce producers’ exposure to Trump’s tariff threats, which on the campaign trail he said could be as high as 60%.
Analysts polled by Reuters forecast the private sector Caixin PMI remained 50.5. The data will be released on Feb. 3.
(Reporting by Joe Cash; Polling by Devayani Sathyan and Susobhan Sarkar in Bengaluru and Jing Wang in Shanghai; Editing by Michael Perry)
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