Official data diverges from China's factory activity expansion in January, as shown by a Caixin survey.

• In January, the Caixin China manufacturing PMI was 50.8, the same as in December, according to a release on Thursday. Despite this, economists predicted the reading would be 50.6, according to a Reuters poll.
• The National Bureau of Statistics of China released data on Wednesday showing that the country's official manufacturing PMI stood at 49.2 in January, marking a fourth consecutive monthly contraction, compared to 49 in December.

In January, China's factory activity expanded for a third consecutive month, according to a private-sector survey released on Thursday, due to the first increase in new export orders in seven months.

Official data indicates that the world's second-largest economy has experienced patchy growth, as evidenced by Thursday's print. This highlights the need for policy support.

In January, the Caixin China manufacturing purchasing managers' index was 50.8, the same as in December, according to a release on Thursday. Despite economists predicting a reading of 50.6 in a Reuters poll, the 50-point mark separates expansion from contraction.

The National Bureau of Statistics of China released data on Wednesday showing that the country's official manufacturing PMI stood at 49.2 in January, marking the fourth consecutive monthly contraction, compared to 49 in December.

Caixin Insight Group's senior economist, Wang Zhe, stated in a Thursday release that overseas demand slightly increased with new export orders expanding for the first time in seven months. The largest output increase was reported in investment goods, while the improvement in external demand was mainly seen in intermediate goods.

The differences in survey samplings have largely contributed to the divergence between the Caixin manufacturing PMI and the official PMI. The Caixin PMI surveys around 650 private and state-owned manufacturers that are more export-oriented and located in China's coastal regions, while the official PMI surveys 3,200 companies across China.

Employment and price pressures

Still, there are some similar trends identified in both surveys.

The official survey released Wednesday showed a decline in employment in China's manufacturing sector, which is consistent with the findings of the Caixin survey.

Wang stated that despite an increase in market activity, companies' main focus on cost-cutting and efficiency improvement prevented the creation of new jobs.

In January, the labor market contracted for the 10th time in the past 11 months, although not as severely as the previous month. Despite ongoing layoffs, businesses managed to decrease their workload, with the index showing a slight decline, according to Wang.

For the past year, producer prices in China have been declining, and the country has been on the brink of deflation for the past nine months.

Wang stated that input costs remained limited due to the slight increase in raw material prices, resulting in the lowest measure for input costs since August.

As market competition intensified, companies' bargaining power weakened, causing the gauge to fall back into contractionary territory, according to Wang.