China’s manufacturing sector unexpectedly contracted in May, according to a private survey released Tuesday, as rising U.S. tariffs continued to pressure overseas demand.
The Caixin Manufacturing Purchasing Managers Index (PMI) dropped to 48.3 in May, missing forecasts of 50.8 and falling from 50.4 in April. A reading below 50 indicates a contraction, marking the first decline in the index in 19 months.
The figures align with recent official data, which also showed a second consecutive monthly drop in factory activity. However, the Caixin survey differs from the government’s, as it focuses more on smaller, privately owned businesses in southern China, while the official reading emphasizes large, state-run enterprises in the north. Analysts monitor both for a fuller picture of China’s economic health.
The Caixin report noted a steep decline in export orders and a broader reduction in manufacturing output due to weak demand. New orders fell at their fastest rate in two-and-a-half years.
Persistent inventory build-up added further pressure on production, while both input and output prices continued to decline, pointing to ongoing deflation within the sector.
Although China and the U.S. agreed to temporarily reduce certain trade tariffs in May, American duties on Chinese goods remain historically elevated. The agreement was only a short-term measure, and recent signs of stalled trade negotiations have dampened hopes for a lasting resolution.
Given the weak manufacturing data, there are growing calls for Beijing to roll out more economic stimulus. With trade tensions still high, additional support—especially in the form of fiscal policy to boost domestic spending—may be needed to stabilize growth.
