China's Manufacturing PMI Returns to Expansion in December

PMI Crosses Back Above 50

China's official manufacturing purchasing managers' index rose to 50.3 in December from 49.8 in November, returning to expansion territory for the first time in three months, the National Bureau of Statistics reported on January 1. The reading exceeded the median forecast of 50.0 in a Bloomberg survey of economists.

The production sub-index improved to 52.1 from 50.7, while new orders climbed to 50.8 from 49.4, suggesting that the government's stimulus measures announced in September and October were beginning to filter through to the real economy.

Stimulus Measures Gain Traction

The improvement followed a series of policy actions by Beijing, including the PBOC's 50-basis-point reserve requirement ratio cut in October, expanded infrastructure spending, and a 2 trillion yuan package of local government debt restructuring approved by the National People's Congress Standing Committee in November.

"The fiscal measures are starting to show up in the data," said Larry Hu, chief China economist at Macquarie Group. "Local governments can now redirect debt servicing costs toward capital investment, which is boosting order books in construction-related industries."

External Demand Remains Weak

The new export orders sub-index rose marginally to 48.3 from 47.5 but remained in contraction, reflecting sluggish global demand and the uncertain outlook for U.S.-China trade relations. Manufacturers reported that orders from European and Southeast Asian markets were stable, while orders from the United States declined for the fourth consecutive month.

The non-manufacturing PMI, which covers services and construction, held steady at 50.2. The services component improved to 50.7, supported by increased holiday-related travel and spending during the December festive period.

Price Pressures Ease

The input price sub-index fell to 49.2 from 49.8, indicating that raw material costs continued to decline. Steel rebar futures fell 4% in December, and copper prices dropped 3.2%, reflecting both weak construction demand and adequate global supply.

Factory-gate deflation, as measured by the producer price index, is expected to persist into the first quarter of 2026, with economists projecting a year-over-year decline of approximately 2% in December when official data is released in mid-January.

Employment Still Contracting

The employment sub-index remained in contraction at 48.0, unchanged from November, indicating that manufacturers continued to reduce headcount. China's surveyed urban unemployment rate stood at 5.1% in November, stable from October but masking significant underemployment among migrant workers and recent graduates.

Youth unemployment (ages 16-24, excluding students), which the government resumed publishing in January after a seven-month suspension in 2023, stood at 16.1% in November, down from a peak of 17.1% in August.

Market Implications

Chinese equities reacted positively to the PMI data. The CSI 300 rose 1.2% in early January trading, while the Hang Seng China Enterprises Index gained 1.5%. The offshore yuan strengthened marginally to 7.12 per dollar.

However, analysts cautioned that a single month of expansion does not constitute a sustained recovery. "The true test will come in March and April, after the Lunar New Year distortions wash out," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. "We need to see consistent readings above 50.5 to confirm a genuine upturn."