Asia’s factories struggle for momentum amid soft Chinese demand

Employees work on the production line at Jingjin filter press factory in Dezhou, Shandong province, China Aug 25, 2022. REUTERS/Siyi Liu

TOKYO, Japan -Asia’s factories delivered a largely patchy performance in January, surveys showed on Thursday, as soft Chinese demand left the region’s economies on a shaky footing at the start of 2024.

China’s private-sector Caixin/S&P Global manufacturing purchasing managers’ index (PMI) stayed at 50.8 in January, unchanged from December and exceeding the 50-point mark that separates growth from contraction.

The reading contrasted with an official survey that showed manufacturing activity contracted for the fourth straight month. Deflationary pressures were also a lingering blight in the world’s second-largest economy, suggesting underlying weakness in demand.

READ: China factory activity growth accelerated in Dec – Caixin PMI

Taken together, they point to a still-underperforming economy and back market expectations for more policy support measures this year.

The picture was patchy for Asian economies with some bearing the brunt of soft Chinese demand better than others.

South Korea’s factory activity expanded in January for the first time in 19 months on improved demand for goods in key markets such as the United States and China.

Patchy picture

But activity shrank in Taiwan and Malaysia, and expanded at a slower pace in the Philippines, the surveys showed.

“For countries like South Korea, the hit from weak Chinese demand was offset somewhat by the resilience in exports to the United States,” said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute.

“But both external and domestic demand appears weak in China. That means the global economy lacks a key driver of growth, which bodes ill for Asian economies,” he said.

Manufacturing activity in Japan also shrank for an eighth straight month in January as output and new orders slumped, with some analysts warning of the hit from production suspension at Daihatsu, a unit of auto giant Toyota Motor Corp.

The Toyota group’s output plan has a critical impact on Japan’s economy as it affects many parts suppliers spread across the country.

Japan’s industrial output rose in December but manufacturers surveyed by the government expect output to plunge 6.2 percent in January, data showed on Wednesday, with a government official citing the impact of Daihatsu’s production suspension.

READ: IMF revises up Asia’s growth forecast, warns of China risk

India, by contrast, saw manufacturing improve substantially in January with factory activity expanding at its fastest pace in four months on robust demand.

The International Monetary Fund on Wednesday revised up its growth forecast for Asia to project an expansion of 4.5 percent this year, driven by robust U.S. demand and the boost from expected stimulus measures in China.

But it said the recovery would be divergent across economies with Japan likely to see growth slow to 0.9 percent, in contrast to an expected 6.5 percent expansion in India. The IMF expects China’s economy to expand 4.6 percent this year, slowing from 5.2 percent in 2023.