China’s Manufacturing Slump Deepens: Factories Freeze for 6th Month

Official PMI at 49.8 in September: China’s National Bureau of Statistics reported the official manufacturing Purchasing Managers’ Index (PMI) at 49.8 for September, up slightly from 49.4 in August but still below the 50-point boom/bust line ^[1] ^[2].
Sixth straight month of contraction: This marks the sixth month in a row that China’s manufacturing PMI has been under 50 – the longest downturn since 2019 ^[3]. Factories are operating below break-even levels, underscoring a “prolonged slump” in production ^[4] ^[5].
Production up, orders flat: Sub-indices show production activity recovering (production index hit ~51.9) even as new orders remain weak (around 49.7) ^[6]. Large state factories focusing on domestic projects are faring better, while smaller, export-oriented firms still see declining orders.
Private survey finds mild growth: By contrast, S&P Global’s private “RatingDog” PMI – which surveys mostly export-led firms – came in at 51.2 for September (above 50) ^[7]. This suggests that export-oriented manufacturers saw rising orders, even as domestic demand remains tepid.
Weak demand and trade headwinds: Analysts say the slowdown reflects soft home demand and trade uncertainty. Domestic consumption has been sluggish since the pandemic, while lingering U.S. tariffs on Chinese goods continue to weigh on factories ^[8] ^[9]. China’s leaders have held high-level talks (President Xi Jinping spoke with Donald Trump on Sept 19), but no major trade deal or tariff relief has materialized ^[10].
Policy response in focus: Beijing has hinted at support measures but so far limited new stimulus. In August the government announced consumer loan subsidies to shore up spending ^[11]. Economists expect more action: ING’s Lynn Song notes that Q3 data “suggest a strong case for further policy support,” and she forecasts another 10-basis-point rate cut and reserve-requirement reduction by year-end ^[12]. A key Politburo meeting in October is widely expected to lay out fresh growth plans ^[13] ^[14].
Mixed economic signals: Other indicators are split. Industrial profits soared 20.4% year-on-year in August (helped by a government crackdown on cut‑throat price wars), even as factory output and retail sales posted their slowest growth in a year ^[15] ^[16]. Consumer prices fell again (deflation of –0.4% y/y in August) ^[17], reflecting weak spending, though producer-price deflation has eased. Services and construction activity are roughly flat: the non-manufacturing PMI held at 50.0 (services sub-index 50.1) – barely in expansion territory ^[18] ^[19].

Manufacturing Activity Stalls – PMI Still in Contraction

China’s official manufacturing PMI in September was 49.8, up slightly from 49.4 in August but still indicating contraction ^[20] ^[21]. This means more factories are shrinking output than expanding. September marked the sixth consecutive month the PMI stayed below 50, the longest downturn since mid-2019 ^[22]. Reuters notes this “prolonged slump” reflects the economy’s struggle with weak demand and trade pressures ^[23] ^[24]. As one analyst put it, “The rebound reflects a seasonal uptick… but a continued upcycle is still some way off” given capacity and global headwinds ^[25].

Bloomberg also highlighted that while the PMI edged up from 49.4 to 49.8, it still marked the longest factory contraction streak in six years ^[26]. Despite the modest rise, the index remains below forecasts (median consensus 49.6) and well under the 50-point expansion threshold ^[27]. In short, China’s factories are still sputtering rather than surging.

Xu Tianchen, a senior economist at the Economist Intelligence Unit, notes that part of September’s uptick was seasonal – factories returned from summer breaks – and that government support is picking up. But he warns that overall momentum is uneven, with a strong first quarter giving way to a soft midyear ^[28] ^[29]. The fact that September’s PMI hit a six-month high suggests Chinese factories may be lagging the hoped-for fourth-quarter revival rather than leading it.

Demand Sagging under Trade and Policy Uncertainty

Analysts point to stubbornly soft domestic demand and uncertain trade outlook as key drags. Chinese consumers have remained cautious (partly due to a prolonged property downturn), and businesses report weak new orders. Reuters highlights “twin pressures” on China: weak home demand and punitive U.S. tariffs ^[30]. Indeed, an official summary notes that Trump-era tariffs have “squeezed” Chinese factories and their overseas buyers ^[31]. Meanwhile, expansion in new U.S. markets has been slow – the U.S. still accounts for roughly $400 billion (14%) of China’s exports ^[32] – so US spending power matters much more than gains in smaller markets.

On exports, there are mixed signals. Survey data suggested a pickup in new export orders for some manufacturers, and Reuters reports that exports to India, Africa and Southeast Asia reached record levels in August ^[33]. Still, experts caution that without a big US deal or global demand surge, any export gains may be limited. And internally, consumer spending remains weak: consumer prices fell 0.4% in August – the fastest decline in six months ^[34] – underscoring weak spending power.

Capital Economics’ China economist Zichun Huang warns that overcapacity remains a problem and output prices are still falling, meaning deflationary pressures are “still entrenched” ^[35]. In other words, price wars and excess supply continue to dampen profit margins even as the government tries to curb cut-throat competition.

Private PMI Shows Glimmers of Growth

Curiously, a separate private survey showed China’s manufacturers in expansion. S&P Global’s “RatingDog” PMI came in at 51.2 for September (up from 50.5 in August) ^[36]. This survey (sometimes linked to the Caixin brand) covers mostly private, export-focused factories. Its reading suggests those firms saw new orders and output rising. In particular, export orders picked up, hinting at resilience in overseas demand.

This private-sector strength stands in contrast to the official PMI. Reuters explains the gap by noting that the official index emphasizes large, state-owned factories selling mainly at home, whereas the S&P survey covers many smaller, export-oriented companies ^[37]. Indeed, official data showed the production sub-index jumped to 51.9 in September ^[38], a six-month high, helped by robust equipment and high-tech manufacturing. But new orders in that survey remained just below 50 (49.7) ^[39], so demand has not fully recovered. Employment in factories (48.5) was still contracting, reflecting caution on hiring ^[40].

Services Sector, Profits and Prices

China’s services sector appears more stable. Official non-manufacturing PMI (services + construction) held right at 50.0 in September ^[41] ^[42] – neither expanding nor contracting overall. The services sub-index was 50.1, with booming growth in telecom, banking and telecoms (above 60), but weaker activity in travel and catering after the summer travel season ^[43] ^[44]. In other words, large urban services industries remain resilient while consumer leisure services have slowed.

Financial data underscores the mixed picture. August industrial profits jumped 20.4% year-on-year ^[45] – a turnaround from July’s decline. The jump was partly due to government actions that curtailed destructive price competition in industries like autos and solar ^[46]. At the same time, factory output growth is at its slowest in over a year, and retail sales likewise stagnated ^[47]. Inflation is muted: as Reuters reports, producer prices are still down about 2.9% year-on-year (less deflation than before), and consumer prices fell 0.4% ^[48]. The policy stimulus launched in July (consumer loan subsidies, support for services) may have propped up prices slightly, but overall demand is too weak to ignite broad inflation ^[49] ^[50].

Policy Outlook – More Support Likely, but Timing Uncertain

China’s leadership is watching closely. So far authorities have been deliberate rather than radical in stimulus – for example, they have not cut interest rates (China’s central bank kept rates steady even as the U.S. Fed eased). Policymakers argue that steady exports and a stock market rally allow patience. Still, experts expect more help soon. Lynn Song of ING notes that third-quarter data point to a “strong case for further policy support” ^[51]. In fact, Song forecasts another modest rate cut and a sizable reserve requirement cut by year-end ^[52].

Pinpoint Asset Management’s Zhang Zhiwei similarly expects the government to tolerate some slowdown in late 2025 but likely not enough to miss its 5% GDP growth goal. He points out that the October Politburo meeting will probably reveal steps to tackle the deceleration ^[53]. Indeed, SCMP reports Zhang saying China’s policymakers may “step up support amid persistent external headwinds and weak domestic demand” ^[54].

Chinese central bank Governor Pan Gongsheng recently affirmed that a “range of monetary policy tools” are still available ^[55]. But insiders say Beijing is wary of over-heating credit or stocks. For now, any measures are likely targeted (consumer loan subsidies, housing support, tax breaks) rather than broad stimulus. According to Joe Cash of Reuters: despite signs of a slowdown, authorities “appear in no hurry to roll out major stimulus measures, given resilient exports” ^[56].

Outlook and Comparisons

China’s PMI divergence – official contraction vs. private expansion – highlights uneven growth. Similar mixed signals are seen elsewhere: for example, official European PMIs have also hovered around 50 amid slowing demand. But unlike China, most major economies have not faced a prolonged trade war or real-estate slump of this scale. The contrast between China’s domestic and export sectors is striking. As one economist notes, strong export orders alongside weak domestic orders suggests growth is “concentrated in a few firms,” making headline PMIs a less reliable indicator ^[57].

Looking ahead, market watchers caution that no quick fix is in sight. Capital Economics’ Zichun Huang warns that systemic issues – excess capacity and deflationary pricing – “remain entrenched” in China’s economy ^[58]. Many experts say that as long as consumer demand and housing market woes persist, the manufacturing contraction may linger. Even a full resolution of U.S. trade tensions might take months to translate into new orders.

In sum, China’s factory data point to genuine concerns. The economy grew only modestly in Q3, and sustaining the government’s 5% target for 2025 is now more challenging. Bloomberg notes that despite a 5.3% GDP gain in H1, the world’s second-largest economy faces “the economy at risk of a slowdown after a growth spurt” ^[59]. Policymakers are likely to accept slower growth late in the year, but they will also be alert to the need for stimulus – which may well emerge if data remain weak. As one U.S. analyst puts it, China’s factories are showing a “faint sign of stabilization” – but the recovery is far from certain without stronger demand ^[60] ^[61].

Sources: Recent PMI and economic releases from China’s National Bureau of Statistics and major media (Reuters, Bloomberg, SCMP, Xinhua) ^[62] ^[63] ^[64] ^[65] ^[66] ^[67] ^[68] ^[69]. Experts quoted include China economists Xu Tianchen (EIU) ^[70] ^[71], Zhang Zhiwei (Pinpoint) ^[72], Lynn Song (ING) ^[73], and Zichun Huang (Capital Economics) ^[74].