China’s Factory Activity Contracts For A 6th Straight Month As Trade Tensions Weigh On The Economy
China’s manufacturing sector shrank for the sixth consecutive month in September. It is extending the longest industrial slowdown since 2019. The official PMI also rose slightly to 49.8 from 49.4 in August.
However, rest all the time, PMI remained below the 50-point threshold. Data signals a mounting political pressure and persistent domestic demand weakness are the core factors contributing to this contraction.
Uneven Recovery Signals
In September, the market condition was slightly better than expected. Reuters had forecasted 49.6, but the actual figures were 49.8. However, this was a minor improvement that couldn’t change the overall picture.
While government data shows a constant shrinking, a private sector survey conducted by RatingDog found signs of improvement. Their index rose to 51.2 in September, which points to growth. It suggests some firms are adapting better than others.
“The September PMI reads from China offered a picture that looked less like a coherent growth engine and more like a car with one cylinder firing while another misfires,” said Stephen Innes, managing partner at SPI Asset Management.
He also added that “Factories are moving more goods, but they’re being forced to do it at thinner margins, like street vendors selling more bowls of noodles at half price just to keep the crowd coming”.
Domestic Demand Still Weak
The non-manufacturing PMI, services and construction, fell to 50.0, the lowest level since November 2024. Employment and factory gate prices remained subdued, with producers slashing prices to attract buyers.
The new export orders sub-index contracted for the seventeenth straight month. Huo Lihui stated that “The latest data show China’s economy is gaining momentum, with output accelerating slightly,”.
However, analysts are not optimistic and they warn that the momentum is fragile and uneven.
Trade Tensions and TikTok Diplomacy
China’s factory activity first slipped into contraction in April, shortly after President Donald Trump took office and reignited tariff threats.
While a pause in steep U.S. tariff hikes has been extended until November, the broader trade agreement remains elusive.
A phone call between Trump and Xi Jinping on September 19 offered a brief moment of optimism. The two leaders are expected to meet one-on-one at the end of October in South Korea during the APEC summit.
One more emerging issue between the states is the proposed transfer of TikTok’s ownership. The U.S. wants Chinese firm ByteDance to transform its ownership to a U.S. company. As the move would require Beijing’s approval, it could show extensive cooperation between both countries.
Policy Response: Cautious Optimism
In mid-August, Chinese policymakers rolled out consumer loan subsidies to boost spending, but the People’s Bank of China left its key lending rates unchanged this month, even after the U.S. Federal Reserve cut rates for the first time in 2025.
“A range of monetary policy tools to support the economy remains available,” said Pan Gongsheng, governor of the central bank, last week.
However, authorities appear in no rush to deploy major stimulus, citing resilient exports and a stock market rally.
Export Strength Masks Structural Risks
China’s exports to India hit an all-time high in August. Also, shipments to Africa and Southeast Asia are on track for annual records.
However, no market rivals the United States, which accounts for over $400 billion in Chinese exports annually, roughly 14% of the country’s total.
“The resilience in exports is encouraging, but it’s not enough to offset weak domestic consumption and the property sector slump,” said Lynn Song, chief economist for Greater China at ING.
He also added that “The real risk is that China’s growth becomes too dependent on external demand, which is volatile and politically sensitive.”
China’s Slowing $19 Trillion Economy Leaves Beijing Walking A Tightrope
Analysts expect a possible rate cut before year-end. However, they also warn that without structural reforms and a clear trade resolution, the manufacturing sector may continue to struggle. According to Zhiwei Zhang, chief economist at Pinpoint Asset Management, “The government may tolerate short-term weakness as long as the full-year growth target of 5% remains achievable. But the longer this contraction lasts, the harder it becomes to maintain confidence, both at home and abroad.”
