China’s Manufacturing Activity Declines
On Friday, China’s National Bureau of Statistics announced that manufacturing activity contracted for the seventh month in a row this October, and the drop was steeper than expected.
The Purchasing Managers Index (PMI), which is a crucial measure of factory performance, decreased from 49.8 in September to a mere 40 in October. This index runs from 0 to 100, and anything below 50 signals economic contraction. The PMI has been under 50 since President Trump’s tariff announcements in April, which was dubbed “Liberation Day.”
Huo Lihui, the Bureau’s chief analyst, mentioned that part of this economic downturn could be attributed to “Golden Week,” a significant holiday in early October, which might have influenced government estimates.
Huo also highlighted that the disappointing manufacturing results were exacerbated by a “more complex international environment,” partly due to U.S. tariff policies. He pointed out that the Chinese government is actively addressing industries with excessive manufacturing capacity, while also aiming to shift spending from manufacturing to consumer consumption.
So far, the Chinese government’s hesitations regarding low consumer spending and trust have contributed to some of the slowest economic growth seen in decades. This ongoing decline marks the longest slump in Chinese manufacturing in over nine years, with new factory orders in October hitting their lowest since 2023.
Bloomberg reported that some Chinese exporters had hoped this slump would prompt a rise in demand for their products. Yet, even with a recent agreement between Trump and Xi Jinping, prospects no longer feel as promising due to the unpredictable nature of U.S. demands.
Chinese exporters seem hesitant to seek new markets outside the U.S. Analysts predict that the final quarter of the year could be the weakest since 2022, when COVID-19 lockdowns severely impacted production.
Chapen Singh, a senior strategist at Australia New Zealand Banking Group, observed that while the outcomes from the Trump-Xi summit may offer some potential positives, substantial policy support is essential to halt the ongoing decline.
The Chinese government has been notably reluctant to implement large-scale stimulus measures, even though analysts, both domestic and international, suggest it might be the only way to revive flagging consumer spending.
Challenges at home include high youth unemployment, a fragile social welfare system, and an aging population. Critics argue that the government has not effectively tackled these issues, making only minor policy adjustments while continuing to invest heavily in factories that produce for export.
The New York Times noted that China’s main issue lies in not overcoming the “chaos” that followed the COVID-19 lockdowns, with household incomes lower than pre-pandemic levels and living costs rising. The downturn in the real estate sector has also caused consumers to hold back on significant purchases, complicating Beijing’s attempts to lessen reliance on exports.
