China's Manufacturing Activity Contracts Amid Trade Tension

An elderly woman shops in a supermarket in Beijing, China, 30 May 2025. EPA/WU HAO
An elderly woman shops in a supermarket in Beijing, China, 30 May 2025. EPA/WU HAO
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China's Manufacturing Activity Contracts Amid Trade Tension

An elderly woman shops in a supermarket in Beijing, China, 30 May 2025. EPA/WU HAO
An elderly woman shops in a supermarket in Beijing, China, 30 May 2025. EPA/WU HAO

China's manufacturing activity contracted in May for a second month, an official survey showed on Saturday, fuelling expectations for more stimulus to support the economy amid a protracted trade war with the United States.

The official purchasing managers' index (PMI) improved slightly to 49.5 in May from 49.0 in April but stayed below the 50-mark separating growth from contraction, in line with a median forecast of 49.5 in a Reuters poll.

On Friday, US President Donald Trump accused China of violating a two-way deal to roll back tariffs and unveiled a doubling of worldwide steel and aluminium tariffs to 50%, once again rattling international trade.

"Recent developments between China and the United States suggest bilateral relations are not improving," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

"Firms in China and the United States with exposure to international trade have to run their business under persistently high uncertainty. It will weigh on the growth outlook in both countries."

The new orders sub-index rose to 49.8 in May from 49.2 in April, while the new export orders sub-index rose to 47.5 from 44.7.

Some firms reported a noticeable rebound in trade with the United States, with improvements in both imports and exports, said senior NBS statistician Zhao Qinghe.

The non-manufacturing PMI, which includes services and construction, fell to 50.3 from 50.4, staying above the 50-mark separating growth from contraction.

Analysts expect Beijing to deliver more monetary and fiscal stimulus over the coming months to underpin growth and insulate the economy from the tariffs.

Interest rate cuts and a major liquidity injection were among easing steps unveiled by the central bank this month.

Beijing and Washington have agreed to a 90-day pause during which both would cut import tariffs, raising hopes of easing tension, but investors worry negotiations will be slow amid persistent global economic risks.

Trump's decision to single out China in his global trade war has stirred major worries about an economy that has been reliant on an export-led recovery to drive momentum in the face of weak domestic demand and deflationary pressures.

On Monday, rating agency Moody's maintained its negative outlook on China, citing unease over tensions with major trade partners could have a lasting impact on its credit profile.

But it acknowledged that government policy had tackled its previous concerns about the health of state-owned firms and local government debt that prompted a downgrade in late 2023.

China's economy expanded faster than expected in the first quarter, and the government has maintained a growth target of about 5% this year, but analysts fear US tariffs could drive momentum sharply lower.

Exports beat forecasts in April, buoyed by demand for materials from overseas manufacturers who rushed out goods to make the most of President Trump's 90-day tariff pause.



China Says Successful US Trade Talks Make Return to Tariff War Unnecessary

Wang Wentao, China's Minister of Commerce, speaks during a press conference in Beijing on July 18, 2025. (Photo by WANG Zhao / AFP)
Wang Wentao, China's Minister of Commerce, speaks during a press conference in Beijing on July 18, 2025. (Photo by WANG Zhao / AFP)
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China Says Successful US Trade Talks Make Return to Tariff War Unnecessary

Wang Wentao, China's Minister of Commerce, speaks during a press conference in Beijing on July 18, 2025. (Photo by WANG Zhao / AFP)
Wang Wentao, China's Minister of Commerce, speaks during a press conference in Beijing on July 18, 2025. (Photo by WANG Zhao / AFP)

China wants to bring its trade ties with the US back to a stable footing, its commerce minister said, adding that recent talks in Europe showed there was no need for a tariff war while urging the US to act in a manner befitting of a superpower.

According to Reuters, Commerce Minister Wang Wentao told reporters on Friday that the "ups and downs" in the two countries' relationship underscored their economic interdependence.

Asked about the United States specifically, Wang said: "Major countries should act like major countries. They must shoulder their responsibilities," adding that China would protect its national interests.

China is facing an August 12 deadline to reach a durable tariff agreement with the United States, after Beijing and Washington reached a preliminary deal last month to end weeks of escalating tit-for-tat tariffs.

If no deal is reached, global supply chains could face renewed turmoil from duties exceeding 100%.

Wang said negotiations in Geneva and London earlier this year demonstrated there was no need to return to a trade war.

"Practice has proven that through dialogue and consultation, with leadership and communication at the highest levels, we can properly manage contradictions and resolve our differences," he said.

"We will continue to strengthen dialogue and communication, deepen consensus, reduce misunderstandings, enhance cooperation, to jointly put China-US economic and trade relations back on track to achieve healthy, stable and sustainable development."

China's rare earths exports rose 32% month-on-month in June, customs data showed on Monday, in a sign that agreements struck last month in London to free up the flow of the metals were possibly bearing fruit.

Chipmaker Nvidia will also resume selling its H20 AI chips to China, Chief Executive Jensen Huang said at an event in Beijing this week, a move US Commerce Secretary Howard Lutnick said was also part of negotiations on rare earths.

Wang said on Friday that he had met Huang the previous day, describing the meeting as evidence that "as the dust settles, everyone has come to the conclusion - especially the US side - that forced decoupling is impossible."

Wang said the current overall tariff level imposed by the US on China was "still high" at 53.6%. Analysts have said that additional duties exceeding 35% will probably wipe out Chinese manufacturers' profit margins.

"Both sides have come to understand that they need each other, as lots of the goods and services that we exchange are irreplaceable, or at least difficult to exchange in the short-term," Wang said.

"China does not want a trade war, but it is not afraid of one," he reiterated.