China’s manufacturing sector stumbled at the start of the year, reinforcing concerns that the economy is entering 2026 with weakening momentum and unresolved structural strains, even as policymakers intensify efforts to pivot growth toward domestic demand.

Official data released on Saturday showed the manufacturing purchasing managers’ index (PMI) fell to 49.3 in January from 50.1 in December, slipping back below the 50 mark that separates expansion from contraction, according to Reuters. The reading undershot market expectations of 50.0 and marked a clear reversal from the modest improvement seen at the end of last year, suggesting that factories are once again struggling to secure sufficient demand to sustain output.

The deterioration was evident across key sub-components. New orders dropped to 49.2 from 50.8 in December, pointing to a slowdown in domestic demand at the very start of the year. New export orders declined further to 47.8 from 49.0, highlighting renewed pressure on external demand despite exports having played a crucial role in propping up growth through much of 2025. Together, the data signal that both domestic and overseas demand are faltering simultaneously, a combination that leaves manufacturers with few buffers.

Weaknesses extended beyond factories. The non-manufacturing PMI, which captures services and construction activity, slid to 49.4 from 50.2 in December, its lowest level since December 2022. That decline underscores that services consumption, which authorities increasingly view as the next engine of growth, is also losing momentum. Construction activity remains constrained by the prolonged property downturn, while consumer-facing services continue to suffer from cautious household spending.

Huo Lihui, a statistician at the National Bureau of Statistics, noted that some manufacturers typically enter a seasonal lull in January and said market demand remains weak. While seasonality may partly explain the slowdown, economists say the scale and breadth of the contraction point to more persistent issues, particularly the lack of confidence among households and private firms.

China met its official growth target of about 5% last year, an outcome that offered political reassurance but masked growing imbalances. Export strength, helped by competitive pricing and firms rushing shipments ahead of anticipated trade restrictions, offset domestic softness. That strategy now looks increasingly fragile as trade tensions with the United States intensify under President Donald Trump’s renewed tariff push, and as global demand shows signs of cooling.

At home, consumption remains the weakest link. Retail sales growth softened further toward the end of last year, contributing to fourth-quarter GDP growth slowing to its weakest pace in three years. Job insecurity, subdued wage growth, and lingering stress in the property sector have continued to weigh on household confidence. For many consumers, precautionary saving remains a rational response to uncertainty, blunting the impact of policy support.

Beijing has begun deploying targeted fiscal measures in response. Authorities recently front-loaded 62.5 billion yuan ($8.99 billion) from ultra-long special treasury bonds to fund subsidies encouraging consumers to replace goods such as home appliances, vehicles, and smartphones. The programme is designed to stimulate spending without resorting to broad cash transfers, which policymakers remain reluctant to adopt.

Monetary policy has also been nudged toward accommodation. Earlier this month, the central bank cut several sector-specific interest rates and signaled it has scope this year to reduce banks’ reserve requirement ratios and implement broader rate cuts if conditions warrant. These steps are aimed at lowering financing costs, supporting credit growth, and easing pressure on indebted firms, though officials remain wary of reigniting financial risks.

As authorities struggle to lift spending on manufactured goods, attention is increasingly shifting toward service consumption. Policymakers hope sectors such as tourism, healthcare, education, culture, and elderly care can absorb excess industrial capacity and provide new sources of employment. The January PMI data, however, suggest that this transition is proving difficult, with services activity also slipping into contraction territory.

Analysts remain cautious about the outlook. Ting Lu, chief China economist at Nomura, said Beijing will need to do significantly more in the coming months to secure growth above 4.5% in 2026. He warned that as policymakers exhaust easily implemented tools, more comprehensive measures will take time to prepare, raising the risk of a prolonged period of subpar growth.

Strategically, Beijing has made boosting domestic demand its top economic priority this year, alongside accelerating efforts to achieve technological self-reliance. President Xi Jinping has urged officials to push ahead with advanced manufacturing while also making domestic demand the main driver of growth, a balancing act aimed at reducing exposure to external trade pressures and supply-chain disruptions.

Even so, stimulus is likely to remain measured. According to the South China Morning Post, China is expected to set its 2026 growth target between 4.5% and 5%, signaling a cautious approach as policymakers weigh growth support against concerns over asset bubbles and financial stability.

Looking ahead, investors will closely monitor private-sector indicators for confirmation or contrast. Analysts surveyed by Reuters expect the Caixin/RatingDog manufacturing PMI to edge up to 50.3 in January from 50.1 previously, when it is released on February 2. A divergence between official and private surveys could again highlight uneven conditions, with smaller, export-oriented firms potentially faring better than state-linked manufacturers tied more closely to domestic demand.

The United States has indicated to New Delhi that India may soon be permitted to resume purchases of Venezuelan crude oil — a marked change in policy that reflects evolving geopolitical priorities as the South Asian nation sharply reduces its reliance on Russian oil amid sustained U.S. tariff pressure.

The potential reopening of Venezuelan oil supplies to India comes after Washington imposed 25 percent tariffs on countries importing Venezuelan crude under former President Donald Trump’s administration in March 2025. That levy was aimed at deterring support for the Maduro government and reducing revenues that could be used to undermine Western policy objectives.

New sources familiar with the matter told Reuters that as India cuts its Russian oil imports — which stood at around 1.2 million barrels per day in January — Washington is offering Venezuelan supplies as an alternative to help fill the gap. India’s Russian crude imports are projected to drop to about 1 million bpd in February and 800,000 bpd by March, with expectations that they may eventually decline further to between 500,000 and 600,000 bpd.

The shift signals a pragmatic recalibration by U.S. policymakers. With Russian oil revenues seen as funding Moscow’s military operations, particularly in Ukraine, the Trump administration is encouraging partners like India to diversify away from Russian sources. Venezuela, which Washington now exerts de facto control over following the capture of its president, Nicolás Maduro, on January 3, is being positioned as a politically acceptable alternative despite longstanding sanctions.

Tariff Threats and Trade-offs

India’s move towards cutting Russian crude imports has been framed both in Washington and New Delhi as part of a larger strategic negotiation. Last year, the Trump administration first imposed a 25 percent tariff on Indian goods over its Russian oil purchases, part of a broader 50 percent tariff on Indian exports triggered by what U.S. officials called reciprocal trade practices. That punitive tariff regime significantly raised the cost of Indian products in U.S. markets and strained bilateral trade.

U.S. Treasury Secretary Scott Bessent has more recently hinted that the 25 percent tariff might be eased where India’s purchases from Russia have “collapsed,” suggesting a potential rollback if New Delhi continues to align its energy sourcing with U.S. expectations.

India’s Energy Diversification Strategy

India’s pivot away from Russian oil is not solely a response to tariff pressure. New Delhi has publicly noted that it is diversifying its crude sources to ensure energy security as global markets become more complex. Officials say that imports from the Middle East, Africa, and South America are filling the void left by declining Russian volumes.

State-owned refiners such as Hindustan Petroleum Corp Ltd (HPCL) and Mangalore Refinery and Petrochemicals Ltd (MRPL) have either halted or significantly reduced Russian oil purchases. Some of these refiners are exploring Venezuelan grades commercially, although pricing and logistics remain key considerations influencing procurement choices.

Meanwhile, private sector giant Reliance Industries has expressed interest in Venezuelan oil if it becomes available to non-U.S. buyers under compliant terms. The refiner paused Venezuelan imports after U.S. tariffs were applied, but remains open to reengaging if regulatory clarity emerges.

Implications for Global Energy and Trade Relations

If India is permitted to resume Venezuelan oil imports, the development is expected to reshape aspects of global crude markets and U.S.–India relations. It would help New Delhi manage its energy mix without absorbing the full impact of U.S. tariffs while aligning more closely with Western efforts to isolate Russian oil revenues. However, most Venezuelan crude currently being offered under U.S. arrangements has been prioritized for the U.S. market, with Indian refiners reporting limited access and unfavorable pricing relative to other sources.

Beyond direct energy policy, the episode highlights broader tensions in U.S.–India trade relations. Tariffs imposed on Russian oil purchases have affected Indian exports across multiple sectors, raising concerns among Indian industry groups about competitiveness and market access.

At the same time, New Delhi’s willingness to shift away from Russian oil — coupled with a US-facilitated alternative in Venezuelan crude — underscores the weight of Trump’s arm-twisting tactic, even on large economies caught in the Washington–Kremlin faceoff.