China's Export-Focused Factories Show Surprise Resilience as Broader Economy Cools

(Bloomberg) -- China's vast manufacturing sector sent a mixed signal in January, with a private survey pointing to unexpected strength among export-focused companies even as broader economic momentum falters.

The RatingDog China Manufacturing Purchasing Managers' Index (PMI) climbed to 50.3 in January from 50.1 in December, according to data released Monday. The reading, which remains just above the 50-mark separating expansion from contraction, surprised analysts who had forecast a slight dip to the neutral threshold.

The uptick offers a glimmer of resilience for the world's second-largest economy, which has been grappling with subdued domestic demand, a protracted property crisis, and cautious policymakers. Authorities in Beijing have refrained from deploying large-scale stimulus, prioritizing financial stability and managing local government debt risks over aggressive growth targets.

"This isn't a broad-based recovery, but a story of export competitiveness," said Michael Chen, a Hong Kong-based economist with Albright Capital. "The private survey captures smaller, globally integrated firms that are benefiting from resilient overseas demand and a competitive currency. It starkly contrasts with the struggles of larger, domestically-focused state-owned enterprises captured in the official data."

Indeed, the private survey's optimism diverged from China's official manufacturing PMI released over the weekend, which showed factory activity contracting unexpectedly in January. The discrepancy is partly methodological: the RatingDog survey is weighted toward smaller, private, and export-oriented businesses, which have been buoyed by stronger-than-expected trade performance.

China's economy grew 5.2% in 2023, meeting its official target, but the recovery has been uneven. While record exports provided a critical lifeline, domestic consumption remains fragile and property investment continues to decline.

Voices from the Ground

We spoke to several business professionals for their take on the data:

• Sarah Lin, Procurement Manager, Shenzhen Electronics Exporter: "Our order books from Europe and Southeast Asia are solid for Q1. The PMI matches what we see on the ground—steady production. But our costs are rising, and the domestic market for our consumer goods is dead quiet."
• David Park, Senior Strategist, Gamma Hedge Fund: "This data reinforces our 'split economy' thesis. The export engine is still chugging along, masking severe domestic weakness. Investors should be selective—look at exporters and avoid sectors tied to the domestic property and consumer story."
• Professor Anya Petrova, Global Trade Analyst, Berlin Institute: "It's a precarious model. Relying on external demand while domestic consumption lags makes China vulnerable to global trade shocks and protectionism. This data is a positive blip, not a strategic solution."
• Frank Gallagher, Manufacturing Consultant (Formerly based in Guangdong): "A 0.2 point move is being spun as 'resilience'? This is desperation. Behind these numbers are factories running on razor-thin margins, a hollowed-out domestic supply chain, and policymakers who'd rather see companies go under than add to the debt pile. It's a managed decline, not a recovery."

Analysts note that while the export sector's strength provides a crucial buffer, sustaining growth will require a rebalancing. President Xi Jinping has recently signaled a greater tolerance for slower growth in some regions, suggesting a continued shift away from debt-fueled expansion at all costs.

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