Manufacturing contracts again despite slight rebound
China’s official manufacturing activity shrank for the sixth consecutive month in September, despite hitting a six-month high. The official purchasing managers’ index (PMI) rose to 49.8, up from 49.4 in August, but remained below the 50-point threshold that signals expansion. The reading still beat economists’ expectations of 49.6, highlighting a fragile recovery that continues to be weighed down by weak domestic demand and ongoing trade tensions with the United States.
The data illustrates the dual challenges facing the world’s second-largest economy. Domestic consumption has not fully recovered since the pandemic, and U.S. tariffs imposed by President Trump continue to pressure Chinese manufacturers. While the National Bureau of Statistics (NBS) survey covers mostly large and domestically focused firms, a separate private survey by S&P Global showed stronger results, with its PMI climbing to 51.2, driven by export orders and faster production growth.
Stimulus hopes and seasonal effects
Economists say the modest rebound reflects seasonal dynamics and the impact of mid-year government support. Xu Tianchen of the Economist Intelligence Unit noted the economic momentum remains volatile, with a strong first quarter, a slower middle period, and expectations of a rebound in the fourth quarter as stimulus ramps up.
Despite these hopes, China’s non-manufacturing PMI fell to 50.0 — the lowest since November — and the composite PMI only edged up to 50.6. These figures reinforce the idea that broader economic momentum remains weak. Although policymakers introduced consumer loan subsidies in August and hinted at further monetary policy tools, no major stimulus has been announced so far.
Trade tensions and policy uncertainty
Trade relations with the U.S. remain uncertain. President Xi Jinping’s recent phone call with Trump did little to clarify the path toward a comprehensive trade agreement, with negotiations still bogged down over the fate of TikTok. In the meantime, Chinese exports to India, Africa, and Southeast Asia are rising, but they cannot replace the scale of U.S. consumption, which represents over $400 billion in annual exports.
The new export orders sub-index contracted for the 17th straight month, and other indicators like employment and factory gate prices remained weak. While some larger exporters are performing well, growth appears concentrated, undermining the PMI’s ability to reflect broader industrial strength. Economists like Zichun Huang warn that deflationary pressures and overcapacity continue to suppress China’s growth outlook.
Outlook points to modest policy support
Despite calls for more aggressive stimulus, the People’s Bank of China has refrained from cutting interest rates in line with the U.S. Federal Reserve. ING’s Lynn Song expects limited action before year-end, forecasting a 10-basis-point rate cut and a 50-point reduction in bank reserve requirements. With factory and retail data pointing to the weakest growth in a year, markets are closely watching for signs of decisive policy moves ahead of the upcoming Communist Party meeting.
Unless significant measures are implemented soon, analysts remain skeptical about China’s ability to engineer a sustained economic recovery. The continued drag from weak consumer spending, export uncertainty, and internal deflation risks makes it unlikely that a full-scale rebound is imminent.
