Asia's factory growth slows amid Chinese demand, U.S. tariff concerns

February 03, 2025 (MLN): Asia's factory activity weakened in January as soft Chinese demand and threats of higher tariffs by U.S. President Donald Trump weighed on business sentiment, private surveys showed on Monday, darkening the outlook for the region's economy.

The latest factory readings come as global markets tumbled after Trump on Saturday made good on his previous threats and ordered sweeping tariffs on imports from Mexico, Canada and China.

The headwinds from China and uncertainty over the fallout from Trump's policies will likely pose major headaches for Asian policymakers, as Reuters reported.

They will need to navigate these challenges as they seek to underpin their economies, many of which are reliant on Chinese consumption and global trade.

China's factory activity grew at a slower pace in January, while staffing levels fell at the quickest pace in nearly five years as trade uncertainties increased, a private-sector business survey showed on Monday.

The outcome was better than an official survey last week, which showed manufacturing activity in the world's second largest economy unexpectedly contracted in January.

In a sign of the broadening impact of China's weakness and U.S. tariff threats, Japan's factory activity fell in January at the fastest pace in 10 months with business confidence hitting a more than two-year low.

While South Korea's manufacturing activity expanded marginally in January, that of Taiwan and the Philippines slowed as the darkening outlook for global trade weighed.

"There's caution among Asian companies over Trump's tariff threats," said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute.

"Manufacturers also aren't confident on the outlook for China, where consumption is unlikely to increase much due to rising job losses among the younger generation."

He further mentioned that Trump tariffs could also accelerate U.S. inflation and keep the dollar strong, which would put downward pressure on emerging Asian currencies.

When global trade is shrinking, that won't bring much benefits to Asian manufacturers, he added.

China's Caixin/S&P Global manufacturing purchasing managers' index (PMI) slipped to 50.1 in January from 50.5 the previous month, missing analysts' forecasts and easing to a four-month low.

But it was just above the 50-mark that separates growth from contraction.

Japan's final au Jibun Bank PMI slumped to 48.7 in January, lower than 49.6 in December and remaining below the 50.0 threshold for seven consecutive months.

South Korea's PMI, by contrast, rose to 50.3 in January from 49.0 in December, when business sentiment was hit by domestic political turmoil, the survey compiled by S&P Global showed.

South Korea's economy barely grew in the fourth quarter of 2024, as a political crisis sparked by President Yoon Suk Yeol's short-lived Dec. 3 martial law bid hurt already frail consumption.

Vietnam's PMI fell to 48.9 in January from 49.8 in December, while that of Taiwan dropped to 51.1 from 52.7, the surveys showed.

The index for the Philippines also fell to 52.3 in January from 54.3 in December.

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