For the first time in 2025, China’s manufacturing sector was in contraction mode. This drop is particularly concerning as the nation continues to navigate ongoing bilateral tensions with the United States. The Ministry of Commerce recently announced that any assertions regarding progress in trade talks between the two nations are mere speculation and lack factual support. This announcement coincides with China preparing for a record drop in U.S. exports in April.
In April, China’s factory activity fell to its lowest point since December 2023. This deepening decline reminds us all of the very real, painful challenges occurring in the manufacturing sector. The March PMI hit a robust 50.5. It plummeted in April, a clear signal that a new economic reality has set in. The non-manufacturing PMI dropped from 50.8 in March to 50.4, reflecting a contraction in services for the first time in over three years.
Declining Manufacturing Activity
The deepening contraction in China’s once-mighty manufacturing sector has rattled the nerves of economists and industry watchers around the world. Output and new orders dropped sharply month-on-month, with both weakening at the steepest rate seen since May 2020. Additionally, export orders fell to 44.7, hitting an eleven-month low.
Despite productivity improvements, as manufacturing continues to shrink, employment growth within the sector is not only declining—it’s happening at a faster rate. This trend is further evidence that businesses are saving in preparation for recessionary pressure and decreased demand. According to a new report released this morning, contract signing activity has dipped down for the first time in three months. This recent decline complicates an already fragile economy.
“De-escalation is up to China.” – US Treasury Secretary Scott Bessent
Impact of Tariffs
Retaliatory tariffs imposed by China on U.S. goods, currently at 125%, are still pinching trade relations. China’s Ministry of Commerce has made it clear that it expects to “completely remove all unilateral tariff measures against China and seek to resolve differences through equal dialogue.” There are no signs that China is ready to enter serious tariff negotiations right now.
Costs of inputs and prices of outputs have plummeted. Both metrics are declining at their sharpest paces in seven months. This continues a recent trend that is indicative of weakening demand for Chinese goods both domestically and globally. As a result, manufacturers are enduring increased hardships.
Services Sector Resilience
Against strong headwinds in manufacturing, China’s services sector has countered with great resilience — expanding for 28 straight months. This industry is as important as it is vibrant. It firmly counters some of the harmful effects felt in manufacturing.
The manufacturing sector is already under great strain from tariffs and falling orders. It is hard to say how long this veneer of resilience could last when faced by such existential threats. Analysts are closely watching for any signs of recovery or shifts in trade dynamics that could impact both sectors moving forward.
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