Private PMI rises to a three-month high as export orders from Southeast Asia rebound, but weak domestic demand and regional disparities expose structural fault lines
China’s manufacturing sector began 2026 on a firmer footing, with factory activity expanding at a faster pace in January as export orders rebounded and production accelerated ahead of the Lunar New Year holidays. Yet beneath the improving headline numbers lies a deeper concern: the country’s economic recovery remains uneven, with domestic demand fragile and regional growth diverging sharply.
The private-sector RatingDog China General Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 50.3 in January from 50.1 in December, marking its highest level in three months and remaining above the 50-mark that separates expansion from contraction.
The survey, conducted between January 12 and 22, showed that output growth picked up amid stronger inflows of new orders. Notably, new export orders returned to expansion territory after contracting in December, buoyed by increased demand from Southeast Asia and other overseas markets . Manufacturers also raised staffing levels for the first time in three months to cope with rising workloads, while purchasing activity and stocks of raw materials increased.
Factories typically front-load production ahead of the Lunar New Year break, and this year was no exception. With the holiday falling in mid-February, exporters accelerated shipments to avoid disruptions, helping offset subdued conditions at home.
Exports cushion weak consumption
The January data underscore a broader pattern that defined China’s economic performance in 2025: resilient exports compensating for soft domestic consumption. In his New Year address, President Xi Jinping said the economy grew 5 per cent in 2025, meeting the government’s target, aided in part by strong global demand for Chinese goods.
However, the recovery has been lopsided. While coastal manufacturing hubs tied to global supply chains have benefited from export growth, domestic-facing sectors continue to struggle with cautious consumers, a property downturn and lingering confidence issues.
The PMI survey highlighted that overall growth in new orders remained only marginal, with some firms citing high prices and subdued market conditions as constraints . Business confidence, though still positive, slipped to a nine-month low amid concerns about rising costs and the broader economic outlook.
Adding to the pressure, input costs rose at the sharpest pace since September 2025, driven in part by higher metals prices. Manufacturers responded by raising factory-gate prices for the first time since November 2024, and export charges climbed at the fastest rate in a year and a half . While higher prices may offer some relief to squeezed margins, they also risk dampening demand if cost pressures persist.
“Overall, the manufacturing sector maintained growth in January, characterized by a marginal recovery in demand and slight improvements in employment. However, business confidence slipped and growth momentum remains weak,” said Yao Yu, founder at RatingDog. “If cost pressures persist while demand recovery is limited, profit margins will remain under pressure. Policy support for initiatives may consolidate the recovery momentum in 2026.”
A deeper structural imbalance
Beyond the monthly data, China faces a more entrenched problem: uneven growth across regions and sectors. Nearly half of the country’s provinces reportedly missed their economic growth targets in 2025, reflecting disparities between export-driven industrial belts and inland regions more dependent on property and domestic spending.
For 2026, only one province has so far set a higher growth target, a sign that local governments remain cautious about the year ahead as fiscal strains mount and revenue from land sales remains under pressure.
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