China’s Caixin Manufacturing PMI jumped to 51.5 in November 2024, up from 50.3 in October, surpassing analysts’ predictions of 50.5. This marks the second consecutive month of growth, indicating a solid recovery in the manufacturing sector. The PMI, which measures manufacturing activity, also showed the fastest expansion since June. Key drivers behind this positive momentum include a sharp rise in foreign orders and a strong rebound in exports, signaling that demand for Chinese goods is picking up both domestically and internationally.

Key Drivers: Foreign Orders and Export Rebound

The primary factor behind the growth was the strongest increase in foreign orders since February 2023. This surge in demand from international markets, combined with renewed export growth, played a pivotal role in boosting factory activity. Manufacturers also ramped up their output to meet rising demand, with production levels hitting their highest point in five months. This growth reflects not only an improved global market environment but also increased confidence in the Chinese economy’s ability to rebound and support sustained manufacturing activity.

Stockpiling and Rising Costs Amid Growing Demand

In response to the increased demand, many manufacturers expanded their purchasing levels and stockpiled raw materials, preparing for potential supply chain disruptions. This proactive approach to securing inventory helped maintain smooth production processes despite global economic uncertainties. However, this growth was accompanied by rising costs. Input prices saw the largest increase in five months due to climbing raw material costs, while selling prices also surged, marking the steepest rise since October 2023. Manufacturers passed on these increased costs to consumers, further influencing the overall price environment.

Challenges and Growing Optimism for the Future

Despite the positive trends in production and exports, some challenges persist. Employment in the sector shrank for the third month in a row, though at a slower pace, indicating that companies are still cautious in their hiring strategies. Additionally, backlogs of work continued to accumulate, suggesting that supply chains are under strain despite efforts to ramp up production. On a positive note, business confidence reached an 8-month high in November, driven by expectations of improved economic conditions and government support. Delivery times also stabilized after several months of delays, further fueling optimism. As Chinese manufacturers adjust to these evolving market conditions, there is hope for continued growth and stability in the sector moving forward.