In November, China’s official manufacturing PMI improved slightly to 49.2 from October’s 49, suggesting continued lacklustre momentum. Production activity likely remained constant, while investment might have decreased further. Retail sales growth was possibly boosted by the base effect, and trade growth could have increased due to easing trade uncertainties. Consumer Price Index (CPI) inflation potentially rose to 0.8% year-on-year, with stable credit growth.

The new US-China trade agreement appears to have contributed to the manufacturing PMI’s recovery by reducing tariffs and trade restrictions. However, new export orders showed only moderate growth with domestic demand appearing weak. Household demand may have softened as the services PMI dropped to a 23-month low.

Trade Surplus and Infrastructure

November export and import growth likely surged partly due to a base effect and the ongoing trade truce. An expansion in the monthly trade surplus is expected. Industrial production growth might have remained steady, supported by export recovery, though fixed asset investment probably continued to decline at a slower rate. Real estate investment contraction may have eased. Interim data suggests that home and land sales improved, while the construction PMI reached a four-month high, suggesting enhanced infrastructure project execution. CPI inflation potentially reached 0.8% year-on-year in November with food inflation playing a role. Money and credit growth likely stayed stable, despite soft loan demand. Government and corporate bond financing saw expansion.

Based on the November data, we see a Chinese economy that is clearly split. The official manufacturing PMI is still in contraction at 49.2, but the slight improvement was driven almost entirely by new export orders following the recent US-China trade agreement. This tells us that any near-term strength is coming from outside the country, not from within.

The domestic story remains weak, which should guide our trading. The services PMI falling to a 23-month low of 49.5 is a major red flag for consumer demand, suggesting a cautious stance on consumer-facing stocks. This weakness is why we see loan demand staying soft, even as the government tries to support the economy through bond financing.

Opportunities in Commodities

For commodity traders, the rally in the construction PMI offers a specific opportunity. This hints at an acceleration in government infrastructure spending, which could support industrial metals like copper and iron ore. Iron ore futures have already responded, climbing back toward $135 per tonne, a level we haven’t consistently seen since early 2024.

The uptick in CPI inflation to a near three-year high of 0.8% is notable, but it is not yet a threat that would force the central bank to tighten policy. In fact, the People’s Bank of China just held its key one-year lending rate steady at 3.45% last month, signaling a preference for stability. This environment of low but rising inflation and steady policy should limit major swings in the yuan.

We are looking at these numbers in the context of the deep property sector crisis that we navigated through 2023 and 2024. While the pace of the real estate investment contraction is finally easing, it remains a significant drag on the economy. This ongoing internal struggle suggests that any rallies in Chinese equity indices, like the FTSE China A50, may be short-lived and present opportunities to sell into strength.

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