China’s Manufacturing Activity Plummets: Sharpest Decline Since 2022 Amid Tariff Tensions

China’s Manufacturing Decline in May: A Closer Look

In May 2025, China experienced a significant drop in its manufacturing activity. The latest report from Caixin/S&P Global revealed that the manufacturing purchasing managers’ index (PMI) fell to 48.3. This is a sharp decline from April’s reading of 50.4 and marks the first contraction since September 2022. Numbers below 50 signal that manufacturing is shrinking, leading to concerns about the country’s economic health.

A major driver behind this downturn is a noticeable decrease in new export orders. The gauge for these orders hit its lowest level since last July. As businesses face stricter U.S. tariffs, the impact is palpable. Wang Zhe, a senior economist at Caixin Insight Group, stated that "uncertainty in the external trade environment has increased" and that major economic indicators are weakening.

This news seems to follow a pattern. The official PMI, released around the same time, showed a smaller decline, moving from 49 to 49.5. Goldman Sachs analysts noted that this discrepancy could stem from the timing of the surveys. The Caixin survey occurs earlier in the month, possibly missing the impacts of any recent trade negotiations.

Job Market Pressures

The manufacturing sector isn’t the only struggling area. Employment fell for the second consecutive month, hitting a pace not seen since January. News of growing unemployment adds to the concerns surrounding consumer confidence and spending.

Historical Context and Changes in Trade Policies

The backdrop to this situation is the ongoing trade war. In recent years, the U.S. had imposed steep tariffs on Chinese imports, at one point exceeding 145%. However, recent efforts have seen those tariffs gradually reduced, now standing at 51.1% for U.S. imports and 32.6% for Chinese goods. Reflecting on the past, this fluctuation in trade policy has heavily influenced manufacturing dynamics in both nations.

Economic Measures and Future Predictions

In response to these challenges, the Chinese government is implementing several measures to support its economy. In May, the People’s Bank of China cut key policy rates and reduced the reserve requirement ratio, aiming to inject more liquidity into the market.

Experts like Ting Lu, chief China economist at Nomura, suggest that as traditional growth drivers like property and exports now act as economic drags, policymakers will need to pivot toward consumption strategies. He believes this may involve more extensive reforms in areas like pensions and family support to boost domestic demand.

As the economy faces persistent pressures, such as deflation and a sluggish real estate market, consumer prices are also declining. Retail sales saw a modest increase of 5.1% in April, but this was below expectations and reflects ongoing challenges.

In summary, China’s manufacturing slump highlights pressing economic challenges, from foreign trade pressures to ineffective domestic policies. The situation demands careful navigation to stabilize growth and restore confidence among consumers and businesses alike.

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