Robots manufacture car parts at a factory in Ningde, China, on October 17, 2024.
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China’s factory activity growth in October was lower than market expectations, dragged down by a sharp decline in new export orders as trade tensions with the United States escalated during the month, according to a private survey released on Monday.
S&P Global’s China Comprehensive Manufacturing PMI for October was 50.6, down from September’s six-month high of 51.2 and below the 50.9 expected by analysts polled by Reuters.
New export orders fell at the fastest pace since May, which survey respondents attributed to “heightened trade uncertainty.”
According to the survey, new business and production growth both slowed in October compared to the previous month, and business confidence fell to its lowest level in six months. “Companies’ optimism was the lowest in six months when assessing their production outlook for the year,” the report said.
However, a measure of factory employment expanded for the first time since March, rising to its highest level since August 2023.
The private survey’s numbers were above the 50 mark that separates growth from contraction, and compared favorably with the official survey released last Friday, which showed manufacturing activity falling to 49.0, the worst contraction in six months.
Previous private surveys conducted by Caixin and S&P Global have typically painted a better picture than official polls in recent years due to their focus on export-oriented manufacturing.
RatingDog’s private survey collects responses from 650 manufacturers in the second half of each month, while the official PMI surveys a larger sample of more than 3,000 companies at the end of the month.
Xie Dongming, managing director and head of Asia macro research at OCBC Bank, said the manufacturing PMI is likely to recover modestly in the coming months as business confidence stabilizes, with an extension of the U.S.-China trade ceasefire and an expected recovery in export orders.
China and the United States agreed to a trade truce last week following a meeting in South Korea between US President Donald Trump and Chinese President Xi Jinping, stabilizing relations after an escalating trade war that raised concerns of a global economic downturn.
Under the agreement, in response to China suspending broad export restrictions on rare earth metals, the United States will reduce fentanyl-related tariffs on Chinese products by half to 10%, bringing the total tariff rate on Chinese products to approximately 47%.
The US will suspend enforcement of the 50% ownership “infiltration rule” under export controls and Section 301 investigations into China’s maritime, logistics and shipbuilding sectors.
The White House announced Saturday that the Chinese government will also end antitrust and anti-dumping investigations targeting U.S. semiconductor companies such as Nvidia and Qualcomm. The Chinese government will also resume purchasing U.S. soybeans and other agricultural and energy products.
Goldman Sachs last week raised its 2025 GDP forecast for China, driven by U.S. trade easing and Beijing’s determination to make its manufacturing industry more competitive and further expand exports. Wall Street banks expect China’s real GDP growth to reach 5% this year and 4.8% in 2026, reaching 4.9% and 4.3%, respectively.
Chinese manufacturers have been trying to diversify their export markets since the beginning of the year, reducing their dependence on the United States and increasing their reliance on Southeast Asian and European markets. China’s exports to the United States have declined by double digits year-on-year every month since April, and have declined year-on-year this year.
This decline was almost offset by increased exports to Southeast Asia, which grew by 14.7% this year as of September, the European Union, which increased by 8.2%, and Africa, which increased by more than 28%. China’s overall exports increased by 6.1% in the first three quarters of this year, but imports decreased by 1.1%.
Despite strong exports, the world’s second-largest economy is showing new signs of strain, with growth slowing to 4.8% in the third quarter, its lowest level in a year. Fixed asset investment, including real estate, unexpectedly fell by 0.5% in the first nine months of this year, the first decline since the pandemic-hit 2020.
Neo Wang, China strategist at Evercore ISI, said in a note on Sunday that the strong GDP growth rate of 5.4% in the fourth quarter of last year, on the back of a series of stimulus measures in September, will weigh heavily on this quarter’s growth rate.
The waning effects of government consumption subsidies and the prolonged housing recession will also continue to constrain growth next year, Wang added.
