China’s Manufacturing Growth Slows Amid Rising Domestic Demand in 2025

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China’s Manufacturing Growth Slows Amid Rising Domestic Demand in 2025

2025-02-04 @ 10:02

China’s Manufacturing PMI Slightly Weakens in January 2025

China’s manufacturing activity displayed a mixed performance in January 2025, according to the latest Caixin China General Manufacturing PMI data. The PMI stood at 50.1, slipping slightly from December’s 50.5 but continuing to indicate modest growth. Despite marking the fourth consecutive month of expansion, the slower pace highlights persisting challenges in the sector.

Manufacturing Output: A 15-Month Growth Streak

China’s manufacturing output remained a highlight, rising for the 15th consecutive month. The growth rate accelerated in January, largely fueled by increased domestic demand and higher new business inflows. However, export orders presented a contrasting picture, recording a fractional decline for the second straight month. Global economic headwinds and trade uncertainties appear to have dampened export-driven momentum.

Employment Hit: Fastest Workforce Reduction in 5 Years

Concerns over employment in China’s factories deepened as staffing levels dropped at their quickest pace in nearly five years. Businesses are exercising caution by curbing hiring and focusing on cutting costs amid an uncertain economic environment. Despite reduced workforce levels, backlogs of work accumulated, further emphasizing the demand pressures on operating capacity.

Key Highlights on Employment:
  • Workforce contraction reflects cost-cutting measures
  • Rising backlogs indicate growing production demands
  • Employment sentiment remains subdued heading into 2025
  • Pricing Trends: Discounts Fuel Sales Amid Cost Stability

    Manufacturers adopted aggressive pricing strategies in January, with average selling prices falling at the fastest rate since July 2023. Discounts aimed to boost sales in a tepid market. Input costs, however, remained stable as suppliers offered price relief that counteracted rising raw material costs.

    Driving Factors Behind Price Adjustments:

  • Discounting boosted domestic demand
  • Supplier price reductions supported production budgets
  • Inflationary pressure on raw materials stayed manageable
  • Business Sentiment Improves Despite Trade Risks

    A cautiously optimistic outlook emerged among Chinese manufacturers. Hopes for stronger government support and sustained growth provided a confidence boost. That said, significant challenges loomed, particularly around global trade relations. US tariffs remained a concern, curbing aggressive investment and hiring activities.

    Other Positive Developments:
  • Logistics efficiency improved with reduced delivery times
  • Inventory levels increased, creating a safety stock buffer
  • Domestic demand uplifted broader market sentiment
  • Trade Uncertainty Suppresses Momentum

    The specter of US-China trade tensions continued to cast a shadow over manufacturing. Ongoing tariff disputes contributed to declining export orders and muted business investments. Many manufacturers remain wary of over-expansion without further clarity on trade policies.

    While China’s manufacturing sector began 2025 on a generally positive note, rising domestic demand and effective logistics were offset by labor market strains, sluggish exports, and geopolitical risks. These factors will be key to watch as the year unfolds.

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