China Manufacturing PMI Quarterly Report

PMI4Q25Recovery after early slump in themanufacturing sector Policy OutlookChinatoramp uppolicy supportin1Q26 1Q26ForecastsGDPgrowthtopick upto4.6%yoywhile PMI tofluctuate around 50.0 HKUST Li & FungSupply Chain Institute Helen Chinhelenchin@ust.hk William Kongwilliamkong@ust.hk China Federation of Chen ZhongTaoczt@clic.org.cn PMI points torecovery after early slump in Helen ChinE: helenchin@ust.hk William KongE: williamkong@ust.hk Our observations •Large enterprisesarerecoveringafteranearly slump,while small and mediumenterprises continue to contract.•Manufacturing outputhasresumedexpansion. HKUST Li & FungSupply Chain InstituteLSK Business BuildingThe Hong Kong University ofScience & Technology Policy outlook •The Central Economic Work Conferencehasset the tone for China’s macro policiesin 2026 as ‘more proactive and impactful’.•The meeting reiteratedthat China will continue to implement a more proactive fiscal Chen ZhongTao Our forecasts for1Q26 czt@clic.org.cnChina Federation ofLogistics •We projectastable growthinmanufacturing production.Whileacontinuedimprovement in external demandis positive, a high comparison base from the sameperiod last year will keep the VAIO growth rate moderate.•HeadlinePMIwillfluctuate around 50.0 due to distortionsfromthe Chinese New Year IN THIS ISSUE: PMI points torecovery after early slump in the manufacturingsector in 4Q25 What the PMI tells us about the performance of enterprises ofdifferent sizes What the PMI tells us about manufacturing production What the PMI tells us about overall market demand What the PMI tells us about upstream and midstream prices What the PMI tells us about manufacturing employment 1. PMI points torecoveryafter early slumpinthe manufacturing sector in4Q25 We project that China’sreal GDP growth willpick up to 4.6% yoy in1Q26. This growth will be China’s manufacturing sector in4Q25 TheChina–US trade warcontinued toexertpressure onChina’s exports andmanufacturingproduction, withChina’smanufacturing PMIdroppingto 49.0 in Octoberandremaininglow at 49.2in November.However,asthe two countriesreacheda trade After a slight contraction inOctober, manufacturing output hassincerecovered,with theoutput index risingfrom 49.7 in Octoberto 50.0inNovemberand further to 51.7inDecember. This recent growth was supported by improved overall market demand, as Prices of industrial productscontinued to decline,withthe ex-factory prices indexremainingbelow thecritical50-markthroughout the quarter.Meanwhile,materialprices Exhibit 2 shows the contributions of the sub-indices to the change in the headline PMI.Thereboundin the headline PMIsinceOctoberwasprimarilydriven byincreasesinthenew ordersindex(which weighs30% in the computation of the headline PMI) andtheoutputindex(which weighs25%).Among the 12 sub-indices (excluding the suppliers’ Policy outlook The Central Economic Work Conferencetook placeon 10-11December 2025, settingthe tone forChina’smacro policies in 2026as‘more proactive andimpactful’.Regardingeconomic workforthis year, the meetingemphasized the importance ofpursuing The meetingreiterated thatChinawillcontinue to implement a more proactive fiscalpolicywhilemaintainingnecessary fiscal deficits, overall debt levels and expenditurescale.Itwillalsomaintaina moderately loose monetary policy, employingvarious Looking ahead,we expectthattheChinesegovernmentwillramp uppolicy supportin1Q26, whichwill helpthe economygrow steadily. Forecasts for1Q26 With global trade tensionseasingandexternal demandcontinuing toimprove, weexpectasteady growthinChina’s exports and industrial production. However, a highcomparison base from the same period last year will keep thegrowth ratesmoderate. Exhibit 4 plots the quarterly real GDP growth ratesalongsidethe monthly PMIs sinceJanuary2021.We project that China’s real GDP growth willpick up to4.6%yoy in1Q26.This growth will be driven by continuedexpansion inexports and industrial 2.What the PMI tells us about the Large enterpriseson the mend Large enterpriseshavefaredbetter than smalland medium enterprises, The PMI of ‘large enterprises’fell from 49.9 in October to 49.3 in November butrebounded to 50.8 in December. Thelatestindex readinghasrisenabove theneutral Smalland mediumenterprisescontinue tostruggle In contrast, the PMI of ‘medium enterprises’picked upfrom 48.7 in October to 48.9 inNovember and 49.8 in December.Meanwhile,the PMI of ‘small enterprises’rebounded Both ‘small enterprises’ and ‘medium enterprises’recorded PMI readingsbelow 50throughout the quarter,signalling ongoingoperationalchallengesandcontraction. 3.What the PMI tells us aboutmanufacturing production Manufacturing outputresumes expansion The output index climbed from 49.7inOctoberto 50.0inNovemberand further to 51.7inDecember.The index readings continued to rise and returned to expansionary Manufacturing production tomaintain stable growthin1Q26 WeexpectthatChina’sVAIOwill maintain asteady growth of 5.0% yoyin 1