Key Points
- China’s Manufacturing PMI dropped to 49.3% in January, down 0.8 points, indicating contraction in the sector.
- Large enterprises (50.3%) maintain growth, while medium (48.7%) and small (47.4%) enterprises are contracting faster.
- The New Orders Index fell to 49.2%, highlighting weakening demand, and the Employment Index at 48.1% suggests ongoing job reductions.
- The Non-Manufacturing Business Activity Index also fell to 49.4%, with construction being particularly hard hit at 48.8%.
- Despite overall weakness, high-tech manufacturing remains strong at 52.0%, and Output Prices crossed 50% for the first time in nearly 20 months, reaching 50.6%.
China’s manufacturing sector is cooling down.
The official Manufacturing Purchasing Managers’ Index (PMI) fell to 49.3% in January—down 0.8 percentage points from December.
For those tracking China’s economic health, this number matters.
A PMI below 50 signals contraction, not expansion.
And right now, most of China’s manufacturing is contracting.
Breaking Down the January PMI by Company Size
Not all manufacturers are struggling equally.
Here’s how the numbers split across different enterprise scales:
- Large enterprises: 50.3% PMI (down 0.5 points from December) — still above the critical 50 threshold
- Medium-sized enterprises: 48.7% PMI (down 1.1 points) — below the line
- Small enterprises: 47.4% PMI (down 1.2 points) — below the line
The pattern is clear: size matters right now.
Large enterprises still have the momentum to grow.
But medium and small manufacturers are losing steam faster—both dropping more than 1 percentage point month-over-month.
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The Five Key Manufacturing PMI Sub-Indices Explained
The overall PMI is built from five component measurements.
Each tells a different story about what’s happening inside China’s factories.
1. Production Index: 50.6% (Still Growing, But Slowing)
Down 1.1 percentage points from last month, but still above 50.
What this means: Manufacturers are still producing more stuff than the previous month.
But the growth rate is decelerating.
Production isn’t collapsing—it’s just losing momentum.
2. New Orders Index: 49.2% (Demand Is Weakening)
This fell 1.6 percentage points and dipped below the critical threshold.
The problem: Factories aren’t receiving as many orders as they used to.
This is where you see the real warning sign.
Even if production is still ticking along, incoming demand is drying up.
That’s the early indicator of trouble ahead.
3. Raw Materials Inventory Index: 47.4% (Stocks Shrinking)
Down 0.4 percentage points from the previous month.
Interpretation: Manufacturers are holding less raw material inventory.
This could mean two things:
• They’re using up existing stock because demand is still there (positive signal)
• They’re cutting inventory because they’re pessimistic about future orders (negative signal)
Given the weak New Orders Index, the second explanation looks more likely.
4. Employment Index: 48.1% (Job Cuts Coming)
Down just 0.1 percentage points, but it’s been below 50 for months.
What this signals: Manufacturers are reducing their workforces.
When factories aren’t getting orders, they don’t need as many workers.
This index is showing that hiring pressure is building in the wrong direction.
5. Supplier Delivery Time Index: 50.1% (Supply Chains Accelerating)
Down just 0.1 percentage points and still above 50.
Translation: Suppliers are delivering materials faster.
This typically happens when demand is weak—suppliers want to move inventory, so they push deliveries out quicker.
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China’s Non-Manufacturing Sector: Even Weaker
Manufacturing isn’t the only weak spot in China’s economy right now.
The Non-Manufacturing Business Activity Index dropped to 49.4% in January (down 0.8 percentage points).
This sector is also contracting.
Construction Is Getting Hit Hardest
The Construction Industry Business Activity Index plummeted to 48.8%, down a massive 4.0 percentage points month-over-month.
The New Orders Index for construction collapsed even further to 40.1% (down 7.3 points).
Why such a sharp drop?
January is traditionally the off-season for construction in China.
Cold weather + the approaching Spring Festival = project delays and slowdowns.
But a 4-point drop is significant.
It suggests more than just seasonality at work.
Services Are Holding Up (Somewhat)
- Monetary & Financial Services: Strong Growth (>65.0)
- Capital Market Services: Strong Growth (>65.0)
- Insurance: Strong Growth (>65.0)
- Wholesale: Contracting (<50.0)
- Accommodation & Hotels: Contracting (<50.0)
- Real Estate: Contracting (<50.0)
Some service sectors are doing well:
- Monetary & Financial Services: Above 65.0% (strong)
- Capital Market Services: Above 65.0% (strong)
- Insurance (Baoxian 保险): Above 65.0% (strong)
But others are struggling:
- Wholesale: Below 50 (contracting)
- Accommodation & Hotels: Below 50 (contracting)
- Real Estate: Below 50 (contracting)
So if you work in finance or insurance—things look OK.
If you’re in hospitality, retail, or real estate—you’re feeling the squeeze.
Non-Manufacturing New Orders Dropped
The Non-Manufacturing New Orders Index fell to 46.1%, down 1.2 percentage points.
This mirrors what we saw in manufacturing: incoming demand is weakening across the board.
Prices Are Stabilizing (But Not Growing)
The Input Price Index for non-manufacturing hit exactly 50.0%, down 0.2 percentage points.
Translation: enterprise costs are basically flat compared to last month.
The Sales Price Index came in at 48.8%, meaning selling prices are declining (though the decline is slowing).
Margins are under pressure—costs aren’t falling as fast as prices.
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China’s Composite PMI: The Big Picture
When you combine manufacturing and non-manufacturing into one number, China’s Composite PMI Output Index was 49.8% in January.
Down 0.9 percentage points from the previous month.
What this means in plain English: China’s overall economic activity is contracting, not expanding.
This is below the expansion threshold.
And it’s trending in the wrong direction.
The Official Explanation: Seasonality + Weak Demand
Huo Lihui (霍丽慧), Chief Statistician of the Service Industry Survey Center of the National Bureau of Statistics (Guojia Tongjiju 国家统计局), offered the government’s official take.
Two main factors are driving the slowdown:
1. January is Traditionally Weak for Manufacturing
Many manufacturing sectors see January as an off-season.
Factory shutdowns for the Spring Festival (Chinese New Year) start in January.
Workers take time off.
Orders naturally slow.
So some of the decline is just the calendar.
2. There Isn’t Enough Effective Market Demand
This is the bigger issue.
Beyond seasonal factors, there simply aren’t enough orders coming in.
Consumers and businesses aren’t buying as much as they used to.
That’s a structural problem, not just a seasonal one.
The Bright Spots (Yes, There Are a Few)
The overall picture is grim, but a few sectors are holding up.
Agricultural Food Processing & Aerospace Stay Strong
Production indices in both of these industries remained above 56.0%.
These aren’t headline-grabbing industries, but they show that not everything is contracting.
High-Tech Manufacturing PMI at 52.0%
While the overall manufacturing PMI is at 49.3%, high-tech manufacturing is still at 52.0%.
Why this matters: China’s future competitiveness depends on advanced tech sectors, and they’re still growing.
This suggests the economy isn’t uniformly weak—it’s bifurcated.
Advanced sectors are fine.
Traditional sectors are struggling.
Raw Materials Prices Are Rising (Commodity Bounce Back)
The Raw Materials Purchase Price Index jumped to 56.1%.
This is driven by rising commodity prices globally.
For manufacturers, this is double-edged:
• Good: It signals some inflation protection and commodity demand
• Bad: It increases input costs when demand is weak
Output Prices Finally Crossed 50
The Output Price Index reached 50.6% in January.
This is the first time it’s been above 50 in nearly 20 months.
What this means: Manufacturers are finally able to raise prices on what they sell.
This is a positive sign for profitability, but only if it sticks around.
What This All Means for You
If you’re an investor, founder, or operator in China:
- Demand is weakening: The New Orders Index across manufacturing and non-manufacturing is soft. Plan accordingly.
- Jobs are at risk: The Employment Index is down. Companies are tightening headcount.
- Size matters: Large enterprises are resilient. Small and medium enterprises are struggling. Consolidation could accelerate.
- Tech is your hedge: High-tech manufacturing PMI is at 52.0% while the overall index is at 49.3%. If you’re building in advanced sectors, you have more runway.
- Margins are tight: Prices are barely rising (if at all), while input costs are higher. Watch your unit economics.
- Construction is in trouble: A 7.3-point drop in construction new orders isn’t just seasonality. Real estate exposure is risky right now.
The January PMI data tells a story of slowing momentum, weakening demand, and structural challenges for China’s economy.
Seasonal factors explain some of it, but not all.
There’s real underlying weakness.
Watch February’s data closely—that will tell you if things are stabilizing or deteriorating further.
