China’s services sector grew at a six-month low in December while Japan’s factory activity steadied at the breakeven mark as order declines eased, signalling a mixed start to 2026
China’s services activity expanded at its slowest pace in six months in December, while Japan’s manufacturing sector showed signs of stabilisation, highlighting uneven momentum across Asia as policymakers brace for another year of global uncertainty.
In China, the RatingDog China General Services Purchasing Managers’ Index (PMI), compiled by S&P Global, edged down to 52.0 in December from 52.1 in November, marking the weakest reading since June. A PMI reading above 50 indicates expansion.
The survey showed new business growth slowed to a six-month low, while new export business slipped into contraction after expanding a month earlier. The decline in foreign demand was attributed largely to lower tourist numbers.
Despite softer activity, business sentiment improved markedly. The expectations sub-index rose to a nine-month high, reflecting optimism about improved market conditions and expansion plans in 2026. “The services sector ended 2025 with a ‘modest growth, high expectations’ profile,” said Yao Yu, founder of RatingDog, noting that shrinking employment and volatile external demand remain key constraints.
Companies continued to cut staffing levels for a fifth consecutive month, shedding both full-time and part-time workers, which contributed to a slight build-up of backlogs. Input costs rose for a tenth straight month due to higher raw material and labour expenses, but firms lowered selling prices amid intense competition and weak pricing power.
China’s broader economic recovery remains fragile, weighed down by a prolonged property downturn and persistent deflationary pressures, even as Beijing aims to meet a growth target of around 5 per cent. Authorities have pledged a proactive fiscal stance in 2026 to stimulate consumption and investment while stepping up efforts to curb overcapacity and price wars.
Meanwhile, Japan’s manufacturing activity stabilised in December, ending a five-month run of contraction. The S&P Global Japan Manufacturing PMI rose to 50.0 from 48.7 in November, reaching the threshold that separates expansion from contraction.
The survey showed the decline in new orders eased to its slowest pace since May 2024. While overall demand remained subdued, some firms reported improved sales supported by new projects and stronger-than-expected customer spending. Consumer and investment goods producers saw better conditions, though intermediate goods makers continued to struggle.
Export orders fell at a slightly softer pace, with firms citing weaker demand across Asia, particularly for semiconductors. Business sentiment over the next 12 months eased from November but remained above the long-run average, supported by expectations of new product launches and stronger demand from sectors such as automobiles and semiconductors in 2026.
Japanese manufacturers continued to add staff for a 13th consecutive month, even as input price inflation accelerated to its fastest pace since April, driven by higher raw material, labour and transport costs, as well as the weaker yen.
The outlook is further complicated by tighter monetary conditions. The Bank of Japan raised interest rates in December to levels not seen in three decades and signalled its readiness to continue tightening, adding another variable to Japan’s industrial recovery.
Taken together, the latest PMI readings suggest Asia’s major economies are entering 2026 on an uneven footing, with China grappling with slowing services momentum and Japan’s factories finding a tentative floor but facing rising costs and policy headwinds.
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