China ended 2025 with factory and services activity edging back into expansion territory, offering Beijing short-term validation that policy support and fiscal timing are cushioning growth risks as the year closes. The official manufacturing PMI rose to 50.1 in December from 49.2 in November, crossing the expansion threshold and marking the clearest improvement in factory sentiment since midyear. At the same time, the non-manufacturing PMI climbed to 50.2 from 49.5, reflecting a synchronized rebound across services and construction after both sectors contracted a month earlier. For investors, the signal matters less as proof of a durable recovery and more as evidence that activity remains highly sensitive to incremental policy impulses and seasonal conditions.The composition of the rebound underscores this point. Construction activity benefited from unusually mild weather in southern regions, allowing projects to stay on schedule and mechanically lifting headline momentum. Service sector strength was concentrated in telecommunications, broadcasting, and capital market-related activity, areas closely linked to policy guidance and financial conditions rather than organic household demand. In contrast, retail and catering activity remained in contraction, highlighting that consumer-facing segments continue to lag despite repeated stimulus efforts. This uneven recovery profile explains why markets have treated the PMI improvement as stabilization rather than a turning point.Private sector data reinforced the official message but carried the same caveats. The S&P Global compiled RatingDog China General Manufacturing PMI rose to 50.1 in December from 49.9 in November, indicating a marginal expansion driven by higher new work volumes. However, new export orders declined again, confirming that external demand remains constrained by persistent trade headwinds. The reading marked the fourth improvement in manufacturing conditions over the past 5 months, suggesting momentum has improved at the margin but remains fragile and narrow in scope.From an investment perspective, the December PMI rebound reduces near term downside risk to China’s 2025 growth outcome but does not materially alter the medium term outlook. Capital Economics characterized the improvement as likely temporary, tied to month to month fiscal spending swings rather than a self-sustaining acceleration. That assessment aligns with the data mix, where weather effects, fiscal execution, and policy-linked services drove gains while private consumption and exports failed to show parallel strength.Looking ahead, investors will focus on whether PMI improvements are validated by hard data on industrial output, fixed asset investment, and services activity early in 2026. The base case is a moderate, policy-supported recovery that keeps activity hovering around expansion levels without a decisive upswing, consistent with subdued but positive PMI readings. The key risk is that fading fiscal momentum or renewed external pressure pushes PMIs back below 50, exposing how thin the underlying growth cushion remains. For now, December’s data signal tactical stabilization rather than a structural reset, a distinction markets are unlikely to ignore.