PMI Quarterly On China Manufacturing – Issue 63 (January 2026)

PMI points to recovery after early slump in the manufacturing sector in 4Q25

Our observations

• Large enterprises are recovering after an early slump, while small and medium enterprises continue to contract.
• Manufacturing output has resumed expansion.
• Overall market demand is recovering.
• Manufacturers are lowering ex-factory prices despite rising input costs. 
• Employment in the manufacturing sector has seen a slight decline.

Policy outlook

• The Central Economic Work Conference has set the tone for China’s macro policies in 2026 as ‘more proactive and impactful’. 
• The meeting reiterated that China will continue to implement a more proactive fiscal policy and a moderately loose monetary policy.
• We expect the Chinese government to ramp up policy support in 1Q26, which will help the economy grow steadily.

Our forecasts for 1Q26

• We project stable growth in manufacturing production. While a continued improvement in external demand is positive, a high comparison base from the same period last year will keep the VAIO growth rate moderate.
• Headline PMI will fluctuate around 50.0 due to distortions from the Chinese New Year holiday.
• VAIO growth will come in at 5.0% yoy.
• Real GDP growth will pick up to 4.6% yoy.
• Exports will remain flat compared with the same period last year.
• Year-on-year growth rates for the purchaser price index and the PPI will remain negative but improve slightly, as the Chinese government prioritizes addressing overproduction in key sectors.