China’s factory sector saw a noticeable slowdown in April, with a steep drop in export orders and resuming employment declines, underscoring the mounting pressure from escalating U.S. tariffs. According to the Caixin/S&P Global Manufacturing Purchasing Managers’ Index (PMI), activity slipped to 50.4 in April, down from 51.2 in March, marking the weakest performance since January.
While the reading still narrowly indicates expansion — anything above 50 reflects growth — the trend points toward increasing stress within China’s export-reliant industrial base. Analysts had forecast a slightly lower figure, making the result technically better than expected, but the underlying data suggest deteriorating conditions.
“The ripple effects of the ongoing China-U.S. tariff standoff will gradually be felt in the second and third quarters,” said Wang Zhe, senior economist at Caixin Insight Group. “Policymakers should be well-prepared, with action taken sooner rather than later.”
Sharp Contraction in Export Orders
The most concerning element of the survey was a marked contraction in new export orders, the sharpest since July 2023. This drop coincides with the implementation of 125% retaliatory tariffs by China on a wide range of U.S.-linked goods, alongside 145% tariffs imposed by the U.S. on Chinese imports, which have significantly dented bilateral trade volumes.
Output continued to expand slightly as factories processed existing and domestic orders, but optimism among manufacturers dropped to its third-lowest level since the series began in 2012, reflecting deepening uncertainty around global trade policy and domestic recovery efforts.
Official Data Confirm Downward Trend
China’s official PMI, released separately by the National Bureau of Statistics, fell more sharply than expected, reinforcing the view that the country’s post-COVID industrial rebound is losing momentum amid foreign headwinds and fragile domestic demand.
Employment in the manufacturing sector also resumed its downward trajectory in April, reversing March gains. The survey noted cost-cutting initiatives, restructuring, and voluntary resignations as key drivers, with job cuts seen across both small and mid-sized enterprises.
Former Premier Li Keqiang once stated that foreign trade supported up to 180 million jobs, either directly or indirectly — a stark reminder of the broader implications as tariffs continue to disrupt global supply chains.
Inventories Fall, Input Costs Drop
Firms also reduced inventories and reported slightly longer supplier lead times, while input costs fell again due to subdued demand and intense vendor competition. The drop in average input costs could provide a limited cushion, but it also signals weakness in upstream demand and pricing power.
Efforts by Chinese authorities to redirect exporters toward the domestic market have faced pushback. Exporters cited low profit margins, weak local demand, payment delays, and high product return rates as significant obstacles to pivoting their business models.
Beijing Caught Between Stimulus and Strategy
Despite the slowdown, Beijing has so far held off on a broad stimulus package, opting instead for targeted relief. At last week’s Politburo meeting, leaders pledged to support firms and workers hit hardest by trade tensions, though details remain limited.
Officials from multiple economic agencies have sought to reassure the market, promising ongoing evaluations and sector-specific interventions. But with sentiment sliding and global conditions remaining volatile, analysts say China may have to act more decisively to stabilize employment and industrial output.
What’s Next: Watch Q2 Data and U.S. Policy Shifts
All eyes now turn to second-quarter data and the trajectory of trade negotiations. With President Trump signaling openness to a new deal — but under “fair” conditions — and Beijing walking a fine line between public resilience and private concessions, the coming months could determine whether China’s manufacturing sector rebounds or further weakens.
