China - Signs of life from the November PMIs

China Macro: November manufacturing PMIs show improvements on the demand side

The November PMIs for China published over the past few days confirm that the Chinese economy is showing more signs of life as we approach year-end, in line with our expectations for quarterly GDP growth. On the manufacturing side, the biggest surprise came from Caixin’s survey, with the manufacturing PMI coming in at a 5-month high of 51.5 (October: 50.3, consensus: 50.6). Its ‘official’ equivalent published by NBS also picked up, but much more marginally, to 50.3 (October: 50.1, consensus: 50.2). The PMI subcomponents show that the improvements were quite broad-based, with the most promising of these seen on the demand side. Although supply (output components) remains stronger than demand (orders components), the new (domestic) orders sub-indices in both surveys moved more convincingly into expansion territory. Caixin’s order component even jumped by more than two full points, to a 21-month high of 52.9. The export subindices of both surveys also moved higher, with possibly already some effects of trade frontloading in the run-up to potential US import tariffs imposed in the course of next year, although the NBS equivalent remained in contraction territory.

Services PMIs come down again

Meanwhile, China’s two services PMIs both dropped in November, and for the first time since 2022 both came out weaker than (or equal to) their manufacturing counterparts. Caixin’s services PMI, published this morning, dropped back to 51.5 (consensus: 52.4), after a rise of almost two full points to 52.0 in October. Last Saturday, the official non-manufacturing PMI dropped back to the neutral 50 mark separating expansion from contraction (October: 50.2, consensus: 50.3). Despite the stepping up of targeted stimulus for the property sector, the construction component of the (official) non-manufacturing PMI dropped to 49.7 (October: 50.4). This marked the first time since the initial Covid shock in early 2020 that this component fell into contraction territory. All in all, Caixin’s composite PMI (a weighted average of the output components in the manufacturing and non-manufacturing surveys) rose further to five-month high of 52.3 (September: 51.9). The official composite PMI was stable at 50.8, the highest level since May 2024.

Improving momentum adds to resilience as China prepares for a new tariff war with the US

All in all, the PMIs confirm that the Chinese economy is ending 2024 on a somewhat stronger footing, in line with our expectation that quarterly GDP growth will pick up materially in Q4-2024. That improvement reflects Beijing’s pivot to step up stimulus since September, payback from weakness in the previous quarter(s) and – as mentioned above – potentially also trade frontloading that will positively impact net exports in Q4-24 and Q1-25. The improvement in momentum puts the Chinese economy on a more stable footing when it moves into 2025, a year it will likely face higher US import tariffs (which we expect to be implemented from Q2-25 onwards). We also expect a stepwise approach to more fiscal stimulus, partly to offset the headwinds from higher tariffs: additional hints on this may come from the annual Central Economic Work Conference held next week. Last but not least, we think China is now better prepared to deal with higher US tariffs compared to the first tariff war in 2018-19, as it has diversified its trade away from the US and has developed a playbook to react. The renewed CNY depreciation versus the US dollar seen over the past weeks and the recent export ban of gallium, germanium and other special metals to the US are a few examples of the tools available in this playbook. See for more background our China outlook, That 2018 (tariff) feeling – What’s different in 2025? (Arjen van Dijkhuizen)