China’s Manufacturing Slump Continues for Six Months, Pressuring Beijing for Deeper Stimulus

The most recent survey data, released on Tuesday, showed that China's official measurement of manufacturing sector performance indicated contraction for the sixth month running in September. This extended period of decline implies that producers are delaying commitments while they await more substantial government intervention to stimulate domestic consumption, along with a clearer outcome from trade discussions with the U.S.

The official Purchasing Managers' Index (PMI), compiled by the National Bureau of Statistics (NBS), reached 49.8 in September. Although this reading represented an increase from the 49.4 recorded in August and surpassed the median expectation of 49.6 from a Reuters poll, it remained under the 50-point mark that divides expansion from decline. The official index tracking non-manufacturing activity, which includes the construction and services sectors, declined to 50.0 from 50.3 in August. However, the NBS composite PMI, combining both manufacturing and non-manufacturing, slightly increased to 50.6 in September, up from 50.5 the month prior.

This protracted weakening of primary factory activity underscores the dual pressures confronting the Chinese economy. Domestic consumption has failed to secure a lasting recovery in the post-pandemic years, while tariffs imposed by U.S. President Donald Trump have strained Chinese production facilities and international firms purchasing components.

In mid-August, policymakers introduced a package of consumer loan subsidies. This action was justified by separate data on factory output and retail sales for that month, which showed their weakest growth in more than 10 months. The Governor of the People’s Bank of China, Pan Gongsheng, noted last week that the central bank retains a variety of monetary policy tools to back the economy. Nevertheless, the central bank did not cut its key interest rate, unlike the U.S. Federal Reserve, contrary to the anticipation of some economists.

Despite signs of slowing momentum in the vast $19 trillion economy, authorities do not appear poised to implement substantial stimulus measures soon, a stance observers attribute to robust exports and a rallying stock market.

The central issue weighing on the manufacturing sector remains global trade. Chinese businesses ship over $400 billion worth of goods to the U.S. annually, a market representing about more than 10% of China's total exports. In August, China’s exports to India, a regional competitor, hit an all-time peak, and shipments destined for Africa and Southeast Asia are on course for annual records.

On September 19, Chinese leader Xi Jinping held a telephone conversation with President Trump, their first in three months, which appeared to alleviate tensions. Yet, it remains unclear whether the call yielded the anticipated resolution regarding the popular short-video application TikTok, a deal analysts deem crucial for a wider trade agreement. Trade officials from China and the U.S. convened again last Thursday to review technical points previously discussed during talks that preceded the Madrid summit, where a preliminary framework for a TikTok deal was established.

In a contrasting indicator, the private sector RatingDog manufacturing PMI recorded a reading of 51.2, an increase from the 50.5 reported the previous month.