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Highlights
- China’s factory output hits deepest contraction since Dec 2023
- Manufacturing PMI drops to 49, below forecasts
- Services and construction activity also weakens
China’s economic engine is showing signs of significant strain as the nation’s factory activity recorded its sharpest contraction since December 2023. According to data released by the National Bureau of Statistics, the official manufacturing purchasing managers’ index (PMI) fell to 49 in April, down from 50.5 in March. This marks the first contraction in several months and sits below the economists' median forecast of 49.7. A reading under 50 typically indicates a decline in industrial activity.
This steep decline reflects early impacts of heightened trade tensions between China and the US. The imposition of sweeping tariffs—reportedly reaching 145%—on Chinese goods is beginning to take a toll. These tariffs are expected to hamper sectors that were major growth contributors in 2024, particularly manufacturing, which fueled nearly one-third of China’s economic expansion last year.
Adding to the concerns, non-manufacturing PMI, which covers construction and services, also fell to 50.4 from 50.8 in the previous month. Although still above contraction territory, it indicates a slowing pace of growth in sectors that are typically more resilient.
Despite these negative signals, Chinese equities remained relatively stable. The CSI 300 Index, which tracks major stocks listed on the Shanghai and Shenzhen exchanges, showed little reaction to the data. Companies with high exposure to Chinese demand could feel the ripple effects across various sectors, including mining, resources, and technology.
Australian companies with business ties or supply chains linked to China, such as BHP Group (ASX:BHP) and Rio Tinto (ASX:RIO), could face volatility due to weakening Chinese industrial activity. Similarly, tech and logistics firms like WiseTech Global (ASX:WTC) might need to monitor the trade environment closely, as it affects cross-border operations.
Investors tracking the broader market reaction can find more insights through key benchmarks like the ASX200, which may reflect any spillovers from slowing Chinese demand. Additionally, defensive assets such as ASX dividend stocks might draw increased attention if volatility rises.
As the situation evolves, global markets will be watching not only how China manages its internal economic challenges but also how policy responses shape trade relations moving forward. The data serves as a wake-up call for those relying on China’s industrial strength to fuel global growth momentum in 2025.
