MNI INTERVIEW: China PMI Rebound Signals Fragile Recovery

The rebound of the official government and private RatingDog manufacturing PMIs above the 50-point expansion threshold in December points to a tentative recovery earlier than expected, but Beijing will need further data to confirm its trajectory, a senior economist and ratings expert told MNI.

“Although the readings remain relatively weak, clear signs of a bottoming-out have emerged,” said Yao Yu, founder of RatingDog, after both his firm’s index and the official PMI rose to 50.1, from 49.9 and 49.2 in November, their first move above the breakeven level since March 2025.

The recent stabilisation was driven by a modest improvement in supply and demand, helping to offset pressure from external uncertainties, Yao said. The market has entered a phase of what he termed “marginal stabilisation,” but policymakers will need more concrete evidence from end-demand performance in Q1 to confirm the strength and trajectory of the recovery.

Still, Yao expects the RatingDog Manufacturing PMI to remain above the 50 expansion–contraction threshold in coming months, signalling moderate growth, supported by macro policy measures and expectations set out at the Central Economic Work Conference.

Sentiment has improved slightly as authorities stepped up efforts to curb “involution-style” competition and signalled continued investment in core sectors, strategic infrastructure and new quality productive forces, known as the “Two Major and Two New” policies. Sustained guidance from fiscal and monetary policy has begun to translate into incremental improvements in manufacturing sentiment, Yao said.

CPI, PPI

In the near term, producer prices may continue to rebound faster than consumer prices, Yao said, after RatingDog’s December PMI showed average input prices rising for a sixth consecutive month, while manufacturers continued to cut output prices to boost sales and clear inventories.

December data showed CPI was 0.8 percentage points higher than in July 2025, compared with a 1.7-point rise in PPI. The policy push to curb excessive competition is having a more direct impact on producer prices, while price transmission from PPI to CPI remains sluggish.

Price increases remain concentrated in raw materials and mid- to upstream processing sectors, while mid- to downstream manufacturing and final consumer goods have yet to show clear pricing power, Yao noted. Over the medium to longer term, however, he expects CPI growth to outpace PPI, as pork remains a key driver of consumer inflation.

While pork prices remain in a prolonged bottoming phase, Yao expects a new cycle to begin in the second or third quarter of 2026 based on trends in breeding sow inventories, which could gradually lift the CPI baseline.