The Caixin China General Manufacturing PMI unexpectedly declined to 48.3 in May 2025, down sharply from April’s 50.4 and well below forecasts of 50.6, marking the first contraction in the sector in eight months.
China manufacturing sector unexpectedly shrinks
This latest reading not only signals a contraction but also represents the steepest decline since September 2022, reflecting intensifying challenges in China’s manufacturing landscape. Output shrank for the first time in 19 months and at the fastest pace since November 2022, while new orders contracted at the sharpest rate seen since 2022, highlighting weakening demand both domestically and internationally.
Foreign sales fell to their lowest level since July 2023, underscoring the continued uncertainty and volatility in the external trade environment, exacerbated by ongoing geopolitical tensions and tariff-related disruptions. Employment also continued to decline, reflecting cautious hiring practices amid subdued demand, while purchasing activity weakened as companies scaled back input orders in response to slowing production. Supplier lead times lengthened marginally, indicating slight disruptions or delays in the supply chain.
Input prices fall again
On the cost front, input prices fell for the third consecutive month, primarily driven by lower energy and raw material prices, which provided some relief to manufacturers facing tighter margins. Output prices also declined, marking the sixth consecutive monthly drop, as heightened competition among suppliers forced companies to reduce selling prices to maintain market share.
Despite these headwinds, business sentiment showed signs of cautious improvement, supported by hopes that trade conditions may ease in the near future, possibly aided by upcoming diplomatic engagements between China and the United States. Firms expressed optimism that policy support and potential trade negotiations could stabilize the environment and foster a recovery in manufacturing activity in the months ahead. However, analysts caution that the sector remains vulnerable to external shocks and domestic demand fluctuations, and sustained stimulus measures may be necessary to restore robust growth.
