China’s manufacturing (PMI) index has been under 50 for most of the months in the past year, indicating growth of Chinese companies is contracting or slowing. It can hurt GDP, employment and trade balance. “In October, manufacturing production activities slowed compared to the previous month,” said Huo Lihui, a chief statistician with the National Bureau of Statistics (NBS).[1] Analysts have sounded an alarm after the PMI in October was the lowest in seven months and entered contraction territory, cautioning against investing in China.[2]
As many as eight of the ten months in 2025 have recorded the Purchasing Managers’ Index (PMI) below 50, while the remaining two were little above 50, signalling contraction of the manufacturing sector this year. The slowed growth of Chinese companies is going to have a serious impact on the country’s GDP, employment, and trade balance. The average PMI before the COVID pandemic was between 51 and 55, which translated into healthy expansion, even though it touched 68 in 2008.[3]
In 2025, China’s manufacturing sector is facing weak demand due to a reduction in new orders, making the employment scenario worse. “The index of employed persons is 48.3% , down from the previous month 0.2 percentage points, indicating that the employment prosperity of manufacturing enterprises has dropped slightly,” reads the Chinese National Statistical Institute’s statement on October PMI data.[4] On the domestic front, the retail sales were worst in October, even as factory output continued to fall.
The widening trade war with the US after the Trumpian tariffs kicked in contributed significantly to the lowering PMI as export orders fell. Chinese products became less competitive after the imposition of tariffs, leading to reduced export demand, increased production cost, supply chain disruptions and investment uncertainty. Moreover, the sluggish post-COVID recovery, global slowdown and domestic property market distress added to the problem.[5][6][7]
China relied heavily on external demand to drive its economic growth through manufacturing and industrial expansion. Thus, U.S. tariffs threw Chinese manufacturing into disarray, as the source of demand weakened, further dragging the GDP down. “Uncertainty in the external trade environment has increased, adding to domestic economic headwinds,” said Wang Zhe, senior economist at Caixin Insight Group.[8]
Julian Evans-Pritchard, an analyst at Capital Economics, said the Chinese model of growth that is dependent on exports cannot be sustainable and is at risk of slowing further over the medium term unless measures to enhance domestic consumer spending are taken.[9] Stephen Innes, Managing Partner at SPI Asset Management, said the PMI data showed Chinese economic growth was not “coherent” as companies were under pressure to cut prices. “Factories are moving more goods, but they’re being forced to do it at thinner margins, like street vendors selling more bowls of noodles at half price just to keep the crowd coming,” Innes said.[10]
The manufacturing growth was expected to remain moderate in the medium term as foreign companies were avoiding China as their sole investment destination, said Chinese economic analyst Samantha Mou. “As a mature economy facing structural adjustments and the increasing relocation of manufacturing capacity under the “China+1” trend, China is not expected to match the rapid growth trajectories anticipated for India and several Southeast Asian economies over the next five years,” she said.
Alexander Brown, Senior Analyst at MERICS, Europe’s leading China think tank, expected the policy contradictions to become more pronounced as manufacturing is central to China’s economic planning. “A sharp slowdown in manufacturing investment was a key factor. Growth was just 4 percent in the first nine months, its weakest rise since December 2020. On a monthly basis, investment was down 1.9 percent in September, compared to 5.1 percent growth in June,” Brown said.[11] Manufacturing accounted for 26 percent of China’s total GDP, underscoring its vital role in the nation’s economic structure.
Besides the external factor of shrinking exports, the domestic causes, such as the property crisis, weakening consumer demand, and fiscal constraints at the local government level, are going to hurt the Chinese economy. “China’s economy is coming under pressure as external demand cools,” said Zichun Huang, a China economist at Capital Economics, in a note. “Although the government is stepping up fiscal support, this is unlikely to fully offset the drag, and we expect the economy to expand just 3.5 percent this year.”[12]
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[1] https://english.www.gov.cn/archive/statistics/202510/31/content_WS69043bdbc6d00ca5f9a07348.html
[2] https://thecorner.eu/news-the-world/manufacturing-activity-in-china-loses-momentum-in-october-lowest-level-in-seven-months-due-to-tariffs/122743/
[3] https://www.ceicdata.com/en/china/purchasing-managers-index-manufacturing/pmi-production
[4] https://www.stats.gov.cn/sj/zxfb/202510/t20251031_1961740.html
[5] https://www.marketreportanalytics.com/news/article/40316
[6] https://www.mic-cust.com/mic-blog/posts/detail/ad/china-manufacturing-shrinks-for-sixth-straight-month-as-us-tariff-tensions-bite/
[7] https://apnews.com/article/china-factory-economy-us-trade-2181298f18f96fa90dc6790b909f06c1
[8] https://www.cnbc.com/2025/06/03/chinas-may-factory-activity-unexpectedly-shrinks-clocking-its-worst-drop-in-nearly-3-years-caixin-.html
[9] https://www.reuters.com/world/china/chinas-q3-gdp-growth-slows-lowest-year-backs-calls-more-stimulus-2025-10-20/
[10] https://apnews.com/article/china-manufacturing-economy-pmi-tariffs-ff446efcd48e45125c854185aae0212a
[11] https://merics.org/en/tracker/chinas-economic-policy-holds-line-growth-weakens
[12] https://www.theguardian.com/us-news/2025/apr/30/china-manufacturing-activity-plummets-amid-trump-tariff-war
