China’s factory activity sees worst contraction since 2023 as US tariffs hit
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China’s factory activity slipped back into contraction in April, revealing early damage from the trade war with the United States.
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BEIJING – China’s factory activity slipped into the worst contraction since December 2023, revealing early damage to the world’s second-biggest economy from the trade war with the US.
April’s official manufacturing purchasing managers’ index (PMI) fell more than expected to 49 from 50.5 in March, the National Bureau of Statistics (NBS) said on April 30. Any number below 50 points to a contraction.
The non-manufacturing measure showed activity in construction and services grew less than forecast.
The indicators offer an alarming first official look at the health of China’s economy after the Trump administration imposed sweeping tariffs of 145 per cent on Chinese products, a level expected to hurt a sector that contributed to nearly a third of the economy’s growth in 2024.
“It’s definitely worse than expected. It shows tariffs started to bite,” Mr Robin Xing, chief China economist at Morgan Stanley, said on Bloomberg Television. He forecast a significant economic slowdown this quarter that could trigger more stimulus.
The offshore yuan extended its drop, declining 0.1 per cent to about 7.27 per US dollar after the data missed expectations.
The trade war has prompted many major financial institutions, including UBS Group and Goldman Sachs Group, to lower their forecasts for China’s 2025 growth to around 4 per cent or lower in recent weeks. The downbeat indicators for factories followed an earlier warning sign for China’s exporters, with cargo shipments plunging possibly by as much as 60 per cent, according to one estimate.
New export orders fell to the lowest since December 2022 and recorded the biggest drop since April that year, when Shanghai entered a citywide pandemic lockdown. A sub-gauge indicated that employment in the manufacturing sector contracted at the worst pace since February 2024, adding pressure on the authorities to stabilise the job market.
To help ease the pressure on exporters, Beijing this week laid out plans to help struggling firms access loans and to boost domestic consumption, but stopped short of announcing more aggressive economic stimuli. Instead, officials are focusing on executing a stimulus package approved in early March.
Mr Xing Zhaopeng, senior strategist at Australia and New Zealand Banking Group, expects Chinese policymakers to use targeted measures in the next two months to partially offset the tariff impact, but will preserve policy room in anticipation of a protracted trade conflict.
Beijing also appears in no rush to negotiate with Washington. Foreign Minister Wang Yi warned countries against caving in to US tariffs threats, saying that appeasement will only embolden the “bully”.
Senior NBS statistician Zhao Qinghe cited a higher base from the previous month and “rapid changes in the external environment” for the drop.
In a statement accompanying the release, the official analyst reiterated the government stance that trade wars have no winners, and pointed to a slowdown in manufacturing activity in major economies including the US, UK and Japan.
The Caixin manufacturing PMI for April was 50.4, higher than a forecast of 49.7.
The figures indicated growth from the previous month, albeit at a slower pace. The private gauge tends to reflect activity in smaller and more export-oriented companies.
“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 Dr Wang Zhe, senior economist at Caixin Insight Group. BLOOMBERG
