Activity at China’s Factories Continues to Decline Amid US Tariffs

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Jul 1, 2025 - 10:04 Updated: Jul 1, 2025 - 01:38
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Activity at China’s Factories Continues to Decline Amid US Tariffs
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Activity at China’s factories remained in contraction for the third consecutive month in June, an official survey showed on June 30, adding to questions about the economy’s outlook under additional U.S. tariffs.

The official manufacturing purchasing managers’ index (PMI), which gauges sentiment among factory owners, increased marginally, coming in at 49.7, compared to May’s reading of 49.5, according to data released by the National Bureau of Statistics of China (NBS).

A reading below the 50 mark, which separates growth from contraction, signals a deterioration in the sector.

The official PMI has remained below 50 since April, when Chinese factories recorded their sharpest monthly decline in more than a year amid simmering trade tensions with the United States.

The official figures are based on a survey of primarily large, state-owned companies and often paint a rosier picture than the private-sector gauge compiled by Caixin and S&P Global, which focuses on smaller, private firms.

The official PMI has stayed below 50 since April, when, according to ING Bank, Chinese factories recorded the sharpest monthly decline in more than a year amid the simmering trade tensions with the United States.

A PMI subindex for new export orders stood at 47.7, official data showed, edging up from May’s reading of 47.5. New export orders have shown contraction for 14 consecutive months.

NBS data indicates that the employment situation has also deteriorated further. The sub-index of the PMI stood at 47.9 percent in June, down 0.2 percent from a month earlier.

The non-manufacturing PMI, which includes services and construction, rose to 50.5 from 50.3 in May, official data showed.

Zichun Huang, China economist at Capital Economics, said in a report to clients that June’s results suggested that “China’s economy regained some momentum, supported by a rebound in manufacturing and construction.”

“But we remain cautious about the outlook, as weaker export growth and a fading fiscal tailwind is likely to slow activity in the second half of the year,” she said.

June marked the first full month since China and the United States reached a temporary trade truce in Geneva. Under the agreement, which took effect on May 14, Washington and Beijing suspended most of their tariffs imposed on each other for 90 days to give more time for further negotiations.

China’s official data, released earlier this month, showed that shipments to the United States had fallen by 34.5 percent from the previous year in May, the steepest decline in more than five years.
While the trade tensions between Beijing and Washington eased last week as the two countries finalized a framework for implementing the Geneva trade talks consensus, the Chinese authorities’ efforts to achieve this year’s 5 percent economic growth target still face headwinds from numerous internal pressures, such as a prolonged property crisis and ongoing deflationary pressures.
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Data from the NBS on June 9 showed that China’s producer price index plunged by 3.3 percent in May from a year earlier—the worst drop in nearly two years—while consumer prices extended declines.
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Reuters contributed to this report.
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