The indicators offer a gloomy first official look at the health of China's economy after the Trump administration imposed sweeping tariffs of 145% on Chinese products, a level expected to hurt a sector that contributed to nearly a third of the economy's growth last year.
"It's definitely worse than expected. It shows tariffs started to bite," Robin Xing, chief China economist at Morgan Stanley, said on Bloomberg Television. He forecast a significant economic slowdown this quarter that could trigger more stimulus.
The offshore yuan extended its drop against the dollar after the data missed expectations, before paring back losses and rising 0.1% to around 7.26 per dollar in the afternoon on the greenback's decline. The onshore stock benchmark CSI 300 Index was little changed.
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The trade war has prompted many major financial institutions, including UBS Group AG and Goldman Sachs Group Inc., to lower their forecasts for China's 2025 growth to around 4% or lower in recent weeks. The downbeat indicators for factories followed an earlier warning sign for China's exporters, with cargo shipments plunging possibly by as much as 60%, according to one estimate.
"We believe Beijing needs to take bolder moves," Lu Ting, chief China economist at Nomura HoldingsInc., wrote in a note. He urged policymakers to address structural challenges such as the property market slump, reform the pension system and improve relationships with other economies. "Beijing has remained calmer than markets expected, but the risk is a worse-than-expected demand shock."
New export orders fell to the lowest since December 2022 and recorded the biggest drop since April that year, when Shanghai entered a citywide pandemic lockdown. A subgauge indicated that employment in the manufacturing sector contracted at the worst pace since February last year, adding pressure on authorities to stabilize the job market.
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To help ease the pressure on exporters, Beijing this week laid out plans to help struggling firms access loans and to boost domestic consumption, but stopped short of announcing more aggressive economic stimulus. Instead, officials are focusing on executing the stimulus package approved in early March.
What Bloomberg Economics says...
Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group, expects Chinese policymakers to use targeted measures in the next two months to partially offset the tariff impact, but will preserve policy room in anticipation of a protracted trade conflict.
Beijing also appears in no rush to negotiate with Washington. Foreign Minister Wang Yi on Monday warned countries against caving in to US tariffs threats, saying that appeasement will only embolden the "bully."
Zhao Qinghe, a senior NBS statistician, cited a higher base from the previous month and "rapid changes in the external environment" for the drop.
In a statement accompanying the release, the official analyst reiterated the government stance that trade wars have no winners, and pointed to a slowdown in manufacturing activity in major economies including the US, UK and Japan.
The Caixin manufacturing PMI for April was 50.4, higher than a forecast of 49.7. The figures indicated growth from the previous month albeit at a slower pace. The private gauge tends to reflect activity in smaller and more export-oriented companies.
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"The US tariff hikes took a toll on external demand, with new export orders declining at the fastest rate since July 2023, leading to just a marginal increase in total new orders in April," said Wang Zhe, senior economist at Caixin Insight Group.
Even before the 145% tariffs, China's industrial and manufacturing firm were already struggling, with profits in the first quarter up by only 0.8%, well below the GDP growth rate. The country's most prominent solar manufacturers, for example, racked up over 8 billion yuan ($1.44 billion) in losses during the first quarter on low prices and oversupply.
