China factory activity expands in December, first increase since March

China’s economy closed the year with a modest improvement in momentum, as official data showed factory activity expanding in December for the first time since March, offering a positive surprise to markets and economists.

According to data released Wednesday by China’s National Bureau of Statistics (NBS), the official manufacturing purchasing managers’ index (PMI) rose to 50.1 in December, up from 49.2 in November.

The reading also exceeded the 49.2 forecast by economists surveyed by Reuters.

A PMI reading above 50 indicates expansion, while anything below that threshold signals contraction.

Factory activity returns to expansion

The improvement in manufacturing was supported by a pickup in new orders and production.

Huo Lihui, chief statistician at the NBS, said new orders rose in December, signaling a “significant expansion” in both production and demand across the manufacturing sector.

Private-sector data echoed the official figures.

A separate PMI survey from independent research firm RatingDog showed manufacturing activity rising to 50.1 in December from 49.9 in November, beating expectations of 49.8.

Yao Yu, founder at RatingDog, said the data suggested manufacturing had returned to expansion, with total new orders growing for a seventh consecutive month.

Yao attributed the rise in orders to domestic new product launches and ongoing business development, which supported production growth.

However, he cautioned that while firms remain confident about 2026, overall optimism has eased and remains below the historical average.

Broader economic indicators improve

Beyond manufacturing, broader measures of economic activity also showed improvement.

The composite PMI, which tracks both manufacturing and services, climbed to 50.7 in December from 49.7 in November, pointing to wider-based growth across the economy.

China’s non-manufacturing PMI, covering services and construction, rose to 50.2 from 49.5 in the previous month, indicating that activity in these sectors also moved back into expansion territory.

The gains were driven primarily by large enterprises.

Data from the NBS showed the PMI for large firms rose to 50.8 in December, up 1.5 percentage points from November.

In contrast, activity among smaller companies remained weaker.

The PMI for medium-sized enterprises increased slightly to 49.8, while the index for small enterprises fell to 48.6, down 0.5 percentage points from the previous month.

Market reaction and policy backdrop

Financial markets fell after the data release.

Hong Kong’s Hang Seng index fell 0.87% following the release, while mainland China’s CSI 300 index also fell 0.44%.

The PMI figures came shortly after China’s central bank decided earlier this week to keep its loan prime rates unchanged, despite ongoing economic challenges.

The world’s second-largest economy continues to face pressure from a prolonged slump in the property sector and softer-than-expected recent data.

November retail sales and industrial output both missed expectations, and fixed-asset investment contracted.

Still, some economists viewed the December PMI data as an encouraging sign.

Hao Zhou, chief economist at Guotai Junan International, described the reading as a “very good, positive surprise to the market” in comments to CNBC’s “Squawk Box Asia.”

He noted that while concerns remain around China’s property market, stock market, and consumption, the latest data suggests the economy is moving in the right direction, with momentum appearing to remain solid heading into the new year.