China's factory activity slipped into the worst contraction since December 2023, revealing early damage of Donald Trump's tariffs and prompting calls for a speedy policy boost.
The official manufacturing purchasing managers' index fell more than expected to 49 from 50.5 in March, the National Bureau of Statistics said Wednesday. The non-manufacturing measure showed activity in construction and services grew less than forecast.
The indicators offer an alarming 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, declining 0.1% to about 7.27 per dollar after the data missed expectations. The onshore stock benchmark CSI 300 Index was little changed.
See also: Chinese set to spend record US$1 trillion in local travel boom
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.
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 stabilise the job market.
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.
See also: Riding a tide of China ignorance
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.
"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.
