China’s Factory Activity Declines Amid Awaited Stimulus and US Trade Deal

China’s Manufacturing Slump Continues Amid Economic Uncertainty

In September 2025, China’s manufacturing sector recorded its sixth consecutive month of contraction, indicating a growing need for stimulus measures to rejuvenate domestic demand and clarity regarding the ongoing trade negotiations with the United States. The official purchasing managers’ index (PMI) rose slightly to 49.8 from 49.4 in August, remaining below the crucial 50-point mark separating growth from contraction. This figure, however, surpassed the median forecast of 49.6 from a Reuters poll, suggesting a complex landscape for production activities across the country.

Key Economic Indicators Reflect Manufacturing Challenges

The report highlights persistent challenges for Chinese manufacturers. While the official PMI indicates weaknesses, a contrasting private-sector survey from S&P Global displayed a more optimistic outlook, with the factory PMI rising to 51.2, its highest since March. This increase was attributed to a boost in new orders and enhanced production growth, along with an uptick in new export orders. The divergence between the surveys illustrates the varied experiences between different segments of the manufacturing sector.

• Official Manufacturing PMI: 49.8 (September)
• Private Sector Factory PMI (S&P Global): 51.2 (September)
• Previous month’s Official PMI: 49.4 (August)
• Previous month’s Private PMI: 50.5 (August)

Domestic Demand and Global Trade Pressures

The ongoing slump in manufacturing underscores the dual pressures weighing on China’s economy. Domestic demand remains fragile post-pandemic, while tariffs imposed during the U.S. trade tensions have further strained the ability of Chinese factories to thrive. Despite these challenges, positive signals, such as increasing new orders reported by private sector surveys, suggest potential for gradual recovery. Xu Tianchen, a senior economist at the Economist Intelligence Unit, noted the seasonal recovery might reflect a shift as government support measures begin to take effect.

Future Prospects and Policy Directions

Looking ahead, markets are keenly awaiting the government’s plans for economic support. Policymakers recently introduced consumer loan subsidies, responding to slowing growth rates in factory output and retail sales. However, the People’s Bank of China has been cautious about adopting aggressive interest rate cuts similar to those of the U.S. Federal Reserve, opting instead to maintain a range of monetary policy tools for future use.

Trade Deal Uncertainty and Export Performance

As discussions continue around the U.S. trade deal, the uncertainty remains a significant factor impacting the economic trajectory. Despite reaching a high in exports to India and positive projections for shipments to Africa and Southeast Asia, the United States remains China’s largest trading partner. In 2024, trade with the U.S. accounted for over $400 billion, nearly 14% of China’s total exports. The recent phone call between Chinese leader Xi Jinping and former President Donald Trump has raised hopes for easing tensions, yet concrete outcomes remain uncertain.

Analysts like Zichun Huang from Capital Economics express skepticism regarding an imminent recovery in economic growth. Key challenges, including overcapacity and ongoing deflationary pressures, highlight the complexities facing China’s economic landscape as it navigates both domestic issues and international relations.

Conclusion

In summary, while there are signs of potential recovery in specific sectors, China’s manufacturing continues to face significant headwinds from both domestic demand fluctuations and evolving international trade dynamics. Policymakers are under pressure to implement effective stimulus measures, navigating the challenges posed by external trade negotiations and internal economic stability.