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China’s manufacturing sector contracted for the sixth straight month in September, the latest sign of pressure from a trade war with the US as tariffs weighed on the wider Asian growth outlook.
The official manufacturing purchasing managers’ index was 49.8 in September, data from the National Bureau of Statistics showed on Tuesday, below the 50 mark that separates expansion from decline.
The gauge has been in contraction territory since April, when US President Donald Trump unveiled his “liberation day” tariffs, marking the longest continuous decline since 2019.
The US and China have yet to hammer out an overarching trade deal despite a fragile truce that has temporarily cut levies on each others’ exports from levels as high as 145 per cent. That has added to uncertainty in the outlook for the world’s second-largest economy, as Chinese policymakers grapple to boost domestic demand.
China has relied heavily on exports to power economic growth at a time when a four-year slowdown in the property sector has proved resistant to official support measures, and consumer confidence has remained tepid.
The Asian Development Bank, the continent’s largest multilateral lender, said on Tuesday that it was cutting its 2025 growth forecast for developing economies in the region to 4.8 per cent, from 4.9 per cent previously.
It said “trade policy uncertainty” has “remained elevated, fuelled by the prospect of new US sectoral duties, and possible revisions to trade deals and tariffs already in place”.
While the manufacturing PMI was in contraction, the reading was the highest since March. The official non-manufacturing PMI of construction and services fell to 50 in September from 50.3 last month, the lowest level this year.
President Xi Jinping has spearheaded a crackdown on so-called involution — a term that in China refers to excessive price competition — across a range of industries from steel to electric vehicles, which are seen to drive overcapacity and fuelling deflation.
The ADB cut its forecast for Chinese inflation this year from 0.4 per cent to zero. The bank pointed to lower food prices, but also cited “falling prices in many domestic manufacturing industries, including EVs”, which it said “will likely continue to put downward pressure on inflation”.
China’s consumer prices contracted 0.4 per cent in August on a year earlier, while producer produces declined 2.9 per cent, their 35th month of deflation.
Lynn Song, chief economist for greater China at ING, noted that the ex-factory price gauge was 48.2, a three-month low, which he said “signals that ‘anti-involution’ efforts against aggressive price competition have yet to have a significant impact on prices”.
The ADB’s growth forecast for China remained unchanged at 4.7 per cent, below the official target of around 5 per cent. The bank said it expected “policy measures” would “mitigate the impact” of various headwinds, from trade to property. Official GDP growth was 5.2 per cent year on year in the second quarter.
Falling new home prices and the weaker consumer backdrop have prompted authorities to introduce a series of support measures in recent months, from mortgage rate cuts to trade-in programmes for household appliances.
But the bank suggested that exports would “likely contribute less” to China’s growth in the second half of the year. China’s shipments to the US cratered by a third in August, according to the most recent data, but increased to south-east Asia and Europe and have continued to expand overall.
“The strong GDP growth in [the first half] is unlikely to continue given the ongoing slowdown in the property market, the sluggish growth of household income and private consumption, and the uncertain trade environment,” ADB said.
Data visualisation by Haohsiang Ko in Hong Kong
