China’s factory activity contracts as US tariffs bite

[WORLD] China’s manufacturing sector contracted at the steepest pace since December 2023, underscoring the early economic fallout from escalating trade tensions with the United States.

The official manufacturing purchasing managers’ index (PMI) dropped to 49 in April, down from 50.5 in March, according to data released by the National Bureau of Statistics on April 30. The reading came in below the median estimate of 49.7 and signaled contraction, as any figure below 50 indicates a decline in activity.

The weakness was most pronounced in new export orders, which fell sharply to 47.6, pointing to softening global demand amid heightened trade frictions. Sectors reliant on U.S. markets—particularly electronics and machinery—have been hit hardest. This trend mirrors recent reports of factory closures and layoffs in coastal industrial zones where export-focused firms are concentrated.

Meanwhile, the non-manufacturing PMI—which tracks activity in construction and services—eased to 50.4 from 50.8 the previous month, slightly below the forecast of 50.6. While the services sector remains in expansion, the deceleration suggests that domestic demand may not be robust enough to offset export losses. Upcoming data on retail sales and consumer confidence are expected to shed more light on the effectiveness of Beijing’s stimulus efforts aimed at boosting household spending.

The latest figures provide an early snapshot of China’s economic trajectory following the U.S. decision to impose sweeping 145 percent tariffs on Chinese goods—measures that threaten a sector responsible for nearly a third of the country’s growth last year.

The tariffs come at a precarious juncture for China’s recovery, which had shown tentative signs of stabilization earlier in the year. While industrial profits rose during the first quarter, the new data points to waning momentum. Policymakers are now faced with the challenge of supporting growth without triggering debt concerns or capital flight through large-scale stimulus.

Adding to concerns, cargo shipment volumes have reportedly plunged—by as much as 60 percent in one estimate—highlighting the pressure on exporters. In response to deteriorating conditions, major banks such as UBS and Goldman Sachs have cut their growth forecasts for China in 2025 to around 4 percent or lower.

Investors are also closely watching the Chinese yuan. While a weaker currency could ease pressure on exporters, it risks escalating tensions with Washington. The People’s Bank of China has so far refrained from bold interventions, but rising corporate dollar demand and volatile capital flows are testing its resolve. A sustained depreciation could invite retaliatory actions from the U.S., adding to the complexity of the economic standoff.

Separately, the Caixin manufacturing PMI—focused more on small and export-oriented firms—rose to 50.4 in April, beating forecasts of 49.7. Though still expanding, growth was modest.

“The US tariff hikes took a toll on external demand, with new export orders declining at the fastest rate since July 2023, leading to just a marginal increase in total new orders in April,” said Wang Zhe, a senior economist at Caixin Insight Group.

In an attempt to support exporters, Chinese authorities this week unveiled new measures to improve loan access for struggling firms and stimulate consumer spending. However, the government stopped short of introducing broad-based stimulus, instead emphasizing the implementation of a previously approved package from early March.

Diplomatic tensions also remain elevated. Beijing has shown little urgency in re-engaging with Washington. Foreign Minister Wang Yi warned that giving in to U.S. tariff pressure would only encourage further aggression, cautioning nations against “appeasement of the bully.”