China’s May factory activity unexpectedly shrinks as tariffs dent sentiment — worst drop since 2022 1/2
PUBLISHED MON, JUN 2 202510:00 PM EDTUPDATED TUE, JUN 3 202512:47 AM EDT
KEY POINTS
• China’s manufacturing activity in May shrank at the fastest pace since September 2022, a private survey showed.
• Official PMI released over the weekend showed China’s manufacturing activity contracted for a second month in May.
• The divergence between the official and Caixin PMI readings may be partly owed to the surveys’ timing differences, said economists at Goldman Sachs.
China’s manufacturing activity in May shrank at its fastest pace since September 2022, a private survey showed Tuesday, as a sharper decline in new export orders highlighted the impact of prohibitive U.S. tariffs.
The Caixin/S&P Global manufacturing purchasing managers’ index came in at 48.3, missing Reuters’ median estimate of 50.6 and dropping sharply from 50.4 in April. It fell below 50, the mark that separates growth from contraction, for the first time since September last year.
The decline in foreign demand accelerated in May, with the gauge for new export orders falling to its lowest level since July 2023, Caixin said. Total new orders, an indicator of overall demand, also contracted for the first time in eight months.
The job market remained grim, with employment shrinking for the second straight month and at the fastest clip since January, according to the survey.
Notably, the factories’ finished goods inventory accumulated for the first time in four months due to falling sales and delays in outbound shipments, the survey showed.
“Uncertainty in the external trade environment has increased, adding to domestic economic headwinds,” said Wang Zhe, senior economist at Caixin Insight Group, adding that “major macroeconomic indicators showed a marked weakening at the start of the second quarter.”
The private gauge followed the official PMI released on Saturday that showed China’s manufacturing activity contracted for a second month in May, although ticking slightly higher to 49.5 from 49 in April, reflecting early signs of stabilization in the sector. That reading was in line with Reuters’ expectations.
The divergence between the official and Caixin PMI readings may be in part driven by the surveys’ timing differences, economists at Goldman Sachs said in a note Tuesday, noting that the effect of the tariff de-escalation mid-May may not have been felt by Caixin PMI respondents at the time of the survey.
The Caixin survey is typically conducted mid-month, earlier than the NBS survey which is compiled at month-end. The private survey also covers a smaller sample of over 500 mostly export-oriented firms, while the official PMI samples 3,000 companies and aligns more closely with industrial output, according to Goldman Sachs.
The official non-manufacturing PMI, which covers services and construction, fell to 50.3 in May from 50.4 in April, staying above the 50-mark since January 2023, according to LSEG data. Caixin services PMI for May is due Thursday.
U.S. President Donald Trump paused 145% tariffs on Chinese imports — most of which took effect in April, for 90 days — following a meeting between the U.S. and Chinese top trade representatives in Switzerland last month.
https://www.cnbc.com/2025/06/03/chinas-may-factory-activity-unexpectedly-shrinks-clocking-its-worst-drop-in-nearly-3-years-caixin-.html