China’s manufacturing sector posted its sharpest decline in nearly five months, driven by aggressive U.S. tariffs that have heightened economic pressures. With key factory indicators falling below expectations, economists are urging Beijing to roll out stronger stimulus measures to avert a deeper slowdown.
Manufacturing Activity Contracts Amid Trade Tensions
The official manufacturing purchasing managers’ index (PMI) fell to 49 in April, dropping from 50.5 in March and marking the steepest contraction since December 2023. A PMI below 50 signals declining activity. This downturn, reported by China’s National Bureau of Statistics (NBS), highlights the growing impact of the Trump administration’s recent 145% tariffs on Chinese goods.
Meanwhile, the non-manufacturing index — which tracks services and construction — also underperformed, reflecting broader economic weakness.
Early Signs of Economic Strain as Exports Falter
The data paints a troubling picture for China’s growth outlook. Economists from Morgan Stanley and other institutions anticipate a marked slowdown in the second quarter, prompting calls for accelerated policy responses. Notably, new export orders plunged to levels not seen since December 2022, coinciding with the worst contraction in factory employment since February 2023.
Analysts also point to a dramatic drop in cargo shipments — potentially as high as 60% — signaling serious headwinds for China’s export-dependent sectors.
Expert Voices Urge Bold Action
“The tariffs are clearly starting to bite,” said Robin Xing, chief China economist at Morgan Stanley, who expects further deceleration in economic momentum. Lu Ting of Nomura echoed the call for urgency, highlighting unresolved structural issues such as the property crisis and pension reform.
Zhaopeng Xing of ANZ Banking Group anticipates targeted relief over the coming months but noted that Beijing may be conserving resources for a potentially prolonged trade dispute.
Limited Stimulus and Tough Rhetoric from Beijing
Beijing has refrained from launching sweeping new stimulus measures. Instead, it has focused on executing plans from early March and facilitating access to loans for exporters. Still, Foreign Minister Wang Yi issued a strong rebuke to U.S. trade pressure, warning other nations against appeasement.
The NBS attributed the weaker data to both a high comparison base and rapidly shifting global conditions. Officials reiterated that trade wars produce no winners, drawing parallels to declining industrial output in the U.S., U.K., and Japan.
Private-Sector Data Offers Slight Relief
In contrast to the official PMI, the Caixin manufacturing index, which reflects activity among smaller exporters, stood at 50.4 — slightly above forecasts. However, Caixin’s senior economist Wang Zhe warned that the increase in total new orders was marginal, as external demand was hit hardest by the tariff hikes.
China’s manufacturing profitability remains weak: Q1 profits were up just 0.8% year-over-year, far below GDP growth. Even leading solar firms reported losses exceeding $1.1 billion, pressured by oversupply and falling prices.
Can Beijing Weather a Prolonged Economic Storm?
As growth expectations dim and external demand falters, pressure mounts on China to stabilize employment and revive factory activity. But will targeted relief be enough in the face of a protracted trade war?
