China's Factory Activity Growth Slows, Caixin PMI Shows

China's manufacturing sector, a critical driver of the world's second-largest economy, has shown signs of slowing down, according to the latest Caixin Purchasing Managers' Index (PMI) data. The Caixin PMI, which focuses on small and medium-sized enterprises, fell to 51.5 in December from 52.1 in November, indicating a slower pace of growth in factory activity. This slowdown comes despite recent policy measures aimed at stimulating domestic demand and bolstering market confidence.



The Caixin PMI's sub-index for new orders also decreased, falling to 51.0 in December from 51.5 in November. This suggests that demand for Chinese goods may be waning, potentially due to external factors such as US-China trade tensions and a global economic slowdown. The new export orders sub-index also declined, indicating that overseas demand for Chinese products is weakening.

The slowdown in factory activity has had an impact on employment and wages in the affected sectors. According to the Caixin PMI, employment shrank for the third month in a row in November 2024, although the rate of fall was modest. This decline in employment can be attributed to the renewed downturn in new orders and subdued market conditions, which led to a reduction in workforce capacity. The shrinking employment rate was accompanied by a fall in backlogs of work, which accumulated for the second month, indicating a decrease in production and demand for labor.

The impact on wages is not explicitly stated in the provided materials, but it can be inferred that the slowdown in factory activity and the subsequent reduction in employment would likely lead to downward pressure on wages in the affected sectors. As demand for labor decreases, employers may be less willing to offer higher wages, and employees may face increased competition for available jobs, leading to lower wage growth or even wage cuts.

Moreover, the slowdown in economic growth and the decline in employment have been accompanied by a rise in the urban jobless rate, which reached a six-month high in August 2024. This further underscores the negative impact of the slowdown in factory activity on employment and wages in the affected sectors.

In conclusion, the slowdown in China's factory activity, as indicated by the Caixin PMI, has had a significant impact on employment and wages in the affected sectors. The decline in new orders, subdued market conditions, and the rise in the urban jobless rate have all contributed to this impact on employment and wages. The slowdown in factory activity has also had implications for the global supply chain, particularly for sectors that heavily rely on Chinese manufacturing. This could lead to supply shortages, increased prices, and global inflation.