China Macro: Services Deficit Narrows as Manufacturing Costs Bite

New data released by China's State Administration of Foreign Exchange reveals a structural improvement in the country's balance of payments. The services trade deficit for 2025 narrowed by nearly $37 billion to $190 billion, the lowest level in three years.

Key Data Snapshot

• Services deficit narrowed to $190 billion (down $37 billion).
• Travel revenue reached a 10-year high of $55.2 billion.
• Tax-refund sales to foreigners surged by 95.9%.
• Caixin Manufacturing PMI rose to 50.3 in January.

Tourism and Tech Drive Surplus

The improvement was spearheaded by the travel sector, where revenue hit a 10-year high of $55.2 billion. Visa-free policies for over 48 countries have successfully stimulated inbound tourism, with tax-refund sales to foreigners jumping 95.9%.

Concurrently, China is moving up the value chain in tradable services. The surplus in telecommunications, computer, and information services expanded significantly, signaling robust global demand for Chinese digital and professional services despite broader headwinds.

PMI Data: Expansion with Caveats

On the manufacturing front, the RatingDog (Caixin) Manufacturing PMI rose to 50.3 in January, beating expectations and marking a second month of expansion.

• The Good: New export orders returned to growth, particularly from Southeast Asia.
• The Bad: Input costs are rising at the fastest pace in four months, driven by the recent commodities bull run. Manufacturers raised ex-factory prices for the first time in 14 months to protect margins.

Forex Implications

For forex traders, these data points suggest resilience in the CNY. The narrowing services deficit reduces structural pressure on the Yuan, while the stabilizing manufacturing sector provides a floor for the currency, even as the USD strengthens globally.