China’s January PMIs Question Stimulus Effectiveness; AUD/USD and Hang Seng React

China PMIs Signal Economic Challenges

China’s economy was under the spotlight on Monday, January 27, giving investors insights into demand trends early in Q1 2025.

China’s National Bureau of Statistics (NBS) Manufacturing PMI dropped from 50.1 in December to 49.1 in January. Services sector activity also waned, with the Non-Manufacturing PMI falling to 50.2 in January, down from 52.2 in December.

Notably, the manufacturing sector contracted for the first time since September. Meanwhile, the services PMI underscored potential challenges in transitioning to a consumption-driven economy.

The contraction across China’s manufacturing sector and a stalling services sector could raise concerns about the effectiveness of stimulus measures. China’s economy expanded by 5.4% in Q4 2024, up from 4.6% in Q3 2024. However, January’s private sector PMIs suggested a marked loss of momentum going into Q1 2025.

This slowdown may affect China’s labor market, household incomes, and consumer sentiment. Deteriorating consumer sentiment may undermine Beijing’s stimulus efforts aimed at boosting consumption.

January’s figures also highlighted potential front-loading ahead of Trump’s inauguration and tariffs on Chinese goods.

Market Reaction to the NBS PMI Data

The Hang Seng Index and the AUD/USD pair reflected investor sensitivity to January’s PMI data.

On Monday, January 27, the Hang Seng Index climbed to a morning high of 20,297 before easing back to 20,206, marking a 0.70% morning gain. Optimism about China avoiding US tariffs boosted demand for Hong Kong-listed stocks. Last week, US President Trump changed his stance on imposing tariffs on China, stating,

“Conversation with China’s Xi went fine. Would rather not have to use tariffs over China.”

Meanwhile, the AUD/USD pair rose to a post-report high of $0.62979 before falling to a low of $0.62853. At the time of writing, the AUD/USD pair was down 0.33% to $0.62895.

Key PMI Survey Differences

While the National Bureau of Statistics numbers drew interest, the Caixin PMI data typically has more impact on the markets. The Caixin PMIs will be out next week.

The NBS PMI primarily reflects activity in large state-owned enterprises across the country. In contrast, the Caixin PMI focuses on small- to mid-sized firms, particularly in coastal regions, making it a more comprehensive indicator of private sector performance.

Looking Ahead

While China’s stimulus measures may stabilize regional markets, investors should monitor trade developments, inflation trends, and monetary policy signals. A cautious approach remains essential amid lingering uncertainties. Discover strategies to navigate this week’s market trends here.