Published by Springnewsng Media Limited
Date: June 3, 2025
Category: China Economy

China’s manufacturing sector suffered its sharpest decline since September 2022, according to the latest Caixin/S&P Global Purchasing Managers’ Index (PMI) released Tuesday. The PMI dropped to 48.3 in May 2025, well below Reuters’ median forecast of 50.6 and a significant drop from April’s 50.4. This marks the first time in eight months that the index has slipped below the crucial 50-point threshold that separates growth from contraction.

The sharp contraction in factory activity is largely attributed to weakened foreign demand, with new export orders falling to their lowest level since July 2023, impacted heavily by heightened U.S. tariffs. Overall new orders also declined, signaling broader demand weakness both domestically and internationally.

Employment conditions worsened as well, with job losses accelerating for the second consecutive month—the steepest pace since January. Inventory levels rose for the first time in four months, driven by sluggish sales and shipping delays.

“External trade uncertainty is escalating and amplifying domestic economic challenges,” said Wang Zhe, Senior Economist at Caixin Insight Group. He noted that key economic indicators weakened notably at the start of the second quarter.

The Caixin PMI contrasts slightly with the official manufacturing PMI, which was released earlier by the National Bureau of Statistics (NBS). The official figure edged up to 49.5 in May from 49 in April, still signaling contraction but showing slight stabilization.

Economists from Goldman Sachs noted the discrepancy may stem from the surveys’ timing. The Caixin survey, conducted mid-month and focused on over 500 mostly export-driven firms, may not have reflected the impact of recent tariff relief measures. In contrast, the official PMI, compiled at month-end with data from 3,000 firms, may have better captured more recent trends.

Meanwhile, China’s non-manufacturing PMI, covering services and construction, slipped to 50.3 in May from 50.4 in April, maintaining growth territory since January 2023.

The U.S. recently paused 145% tariffs on Chinese imports for 90 days following trade talks in Switzerland. As a result, the average U.S. tariff rate on Chinese goods dropped to 51.1%, while China’s tariffs on U.S. imports stand at 32.6%, according to the Peterson Institute for International Economics.

Despite these policy shifts, China’s industrial output growth slowed to 6.1% year-on-year in April, down from 7.7% the previous month. Exports rose 8.1% year-over-year in April, buoyed by increased trade with Southeast Asia, partially offsetting declines in shipments to the U.S.

Industrial profits increased for a second straight month in April, thanks to Beijing’s support measures aimed at improving liquidity and easing cost pressures. In May, the People’s Bank of China cut key policy rates by 10 basis points and reduced the reserve requirement ratio (RRR) by 50 basis points to inject more liquidity into the economy.

However, deflationary pressures remain a major concern. A continued housing slump and weak consumer confidence have dragged on retail sales, which grew just 5.1% in April, below expectations. Wholesale prices posted their steepest six-month decline, while consumer prices fell for the third straight month.

Economists warn that without bold policy reforms, China’s economic recovery could falter. Ting Lu, Chief China Economist at Nomura, urged Beijing to implement stronger measures to stimulate domestic consumption, including pension system reforms and birth subsidies, as traditional growth engines like property and exports lose momentum.