World’s biggest manufacturing state is in a slump — here’s why

The official manufacturing purchasing managers’ index (PMI) came in at 49.2, below the 50-point threshold that separates growth from shrinkage.

Economists had expected a slightly stronger reading of 49.4, and while the figure is an incremental improvement from October, it highlights the depth of the slowdown. 

Industrial output this quarter has posted its weakest gains since early 2025, reflecting falling export orders and nervous domestic spending.

The latest survey also showed that activity across construction and services slipped into contraction for the first time in nearly three years. The non-manufacturing PMI fell to 49.5 in November, from 50.1 the month before, dragged down heavily by the property sector and residential services.

What’s behind the slump?

The data paints a picture of an economy losing momentum on multiple fronts. 

Retail sales growth has slowed for five consecutive months — the longest decline since the early Covid-19 lockdowns — signalling that consumers remain cautious despite government efforts to revive demand. 

Job uncertainty, falling house prices and weak confidence are weighing on household spending.

Trade strains continue to cloud the outlook. Exports unexpectedly contracted in November as global demand failed to compensate for a steep fall in shipments to the United States. 

Although tensions eased slightly after a temporary truce was struck in South Korea in October between Presidents Donald Trump and Xi Jinping, key issues — including controls over rare earth exports — remain unresolved, leaving the deal fragile.

Relations with Japan have also deteriorated, adding another layer of uncertainty. A diplomatic dispute in recent weeks has prompted Beijing to consider economic countermeasures, raising concerns over further disruption to regional supply chains.

Bright spots

There are pockets of resilience: high-tech manufacturing stayed in expansion territory at 50.1 for a tenth month, and sentiment indicators show some improvement. The index measuring expectations for production and operations climbed to 53.1, with aerospace equipment and non-ferrous metals reporting confidence levels above 57.

Smaller firms also showed signs of recovery, with the PMI for small enterprises jumping two points to 49.1 — the strongest reading in nearly six months. But large manufacturers, which drive the bulk of industrial output, weakened to 49.3, signalling uneven recovery across sectors.

The weak readings follow a bruising period for industry. Industrial profits fell 5.5% in October, the sharpest decline since June, and the property slump continues to erode demand for construction materials and household goods. Services activity, which had been buoyed by the October Golden Week holiday, has now given up much of that boost.

For policymakers, the dilemma remains familiar. 

Beijing has resisted launching major stimulus, arguing that growth is still on track to meet the government’s 5% target for the year. But with output stagnating and demand still faltering, pressure is growing for clearer support measures — and confidence that China’s manufacturing engine can restart after months of sputtering.