China's factories continue to struggle as activity contracts for sixth month

In September 2025, China's manufacturing sector continued to experience a significant contraction, marking the sixth consecutive month of decline. The official manufacturing purchasing managers index (PMI) improved slightly to 49.8 from 49.4 in August, yet remained below the critical threshold of 50, which separates contraction from expansion. Meanwhile, a private sector PMI survey indicated a more optimistic outlook, with figures rising to 51.2 from 50.5 in the same period. These mixed signals underline ongoing challenges facing the economy, primarily due to persistent domestic demand issues and trade complications with the United States. The economic landscape has been complicated by trade tensions and rising competition within the manufacturing sector. As businesses face pressure to lower prices, many are operating on thinner profit margins, similar to street vendors discounting their goods to attract customers. Analysts like Stephen Innes of SPI Asset Management remarked that the September PMI readings suggest a disjointed economic engine, with some areas showing growth while others lag behind. The Chinese government has expressed cautious optimism, stating that output is accelerating slightly, suggesting that there may still be potential for recovery despite current shortcomings. The situation has been exacerbated by long-standing issues such as a slump in the property sector, high unemployment rates, and weak consumer spending. As a result, various economists are hopeful that a reduction in interest rates by the People's Bank of China (PBOC) could help stimulate further economic activity. Earlier this month, the PBOC opted to keep its key lending rates unchanged, avoiding any immediate shifts following the U.S. Federal Reserve's rate cut. However, many believe that a forthcoming rate adjustment could be crucial in encouraging both consumer spending and business investments, addressing the sluggish economic climate. In the context of ongoing trade negotiations with the U.S., expectations around a potential agreement impact China's manufacturing outlook. Despite improvements noted in private sector readings, the overarching uncertainty tied to negotiations, specifically regarding tariffs and U.S. policy changes, continues to overshadow the economic forecast. A crucial meeting is scheduled between U.S. President Donald Trump and Chinese President Xi Jinping, likely taking place at an upcoming summit, where discussions about tariffs, trade agreements, and a potential resolution concerning the ownership transfer of TikTok will be pivotal. The outcome of such discussions may greatly influence future economic activity and trade relations moving forward.