Trade deal fails to revive China’s slowing manufacturing boom

China’s factory sector hit a soft patch in October, with a private survey released Monday showing manufacturing growth fell short of expectations as overseas orders took their steepest dive in months.

The RatingDog China General Manufacturing PMI, compiled by S&P Global, came in at 50.6 last month, down from September’s 51.2, which had been the strongest reading in six months. Economists polled by Reuters had expected 50.9.

Survey respondents pointed to “rising trade uncertainty” as the culprit behind the sharp drop in new export orders, which fell at the fastest clip since May. Both production and new business expanded more slowly than in September, while manufacturer confidence hit a six-month low. When asked about their 12-month outlook, firms were “the least upbeat in six months,” the survey found.

There was one silver lining. Factory employment actually grew for the first time since March, hitting its highest level since August 2023.

Gap with official data

The private survey’s 50.6 reading, still above the 50 threshold that separates expansion from contraction, looked considerably better than the official government PMI released Friday, which showed manufacturing contracted to 49.0, the sharpest decline in six months.

Private surveys (previously run by Caixin and S&P Global) tend to paint a rosier picture than official figures because they focus more heavily on export-oriented factories. The RatingDog survey polls 650 manufacturers in the second half of each month, while the official PMI covers more than 3,000 firms and surveys them at month-end.

Dongming Xie, who heads Asia macro research at OCBC Bank, expects the manufacturing PMI to recover somewhat in coming months, thanks to the recently extended U.S.-China trade truce and anticipated improvement in export orders.

Trade deal provides breathing room

The two powers reached an agreement last week after Presidents Trump and Xi met in South Korea, easing tensions that had sparked worries about a global slowdown.

Under the deal, Washington will cut its fentanyl-related tariffs on Chinese goods in half to 10%, bringing the overall tariff rate on Chinese products to roughly 47%. Beijing, meanwhile, has agreed to suspend its sweeping rare earth export restrictions.

The U.S. is also holding off on implementing a 50% ownership “penetration rule” under export controls and has paused its Section 301 probe into China’s maritime, logistics and shipbuilding industries.

A White House statement Saturday said China will drop its antitrust and trade investigations into U.S. chipmakers like Nvidia and Qualcomm, and resume buying American agricultural goods like soybeans and energy exports.

Goldman sees stronger growth

Goldman Sachs raised its China growth forecasts last week, encouraged by the trade deal and China’s push to bolster manufacturing and exports. The bank now expects 5% real GDP growth this year and 4.8% in 2026, up from prior estimates of 4.9% and 4.3%.

Chinese manufacturers have spent this year diversifying away from the U.S. market, ramping up shipments to Southeast Asia and Europe instead. U.S.-bound exports have dropped by double digits year-over-year every month since April.

That’s been largely offset by a 14.7% jump in exports to Southeast Asia through September, an 8.2% increase to the EU, and over 28% growth to Africa. Overall, China’s exports rose 6.1% in the first three quarters while imports slipped 1.1%.

But strong export numbers haven’t been enough to mask deeper problems in the world’s second-largest economy. Growth slowed to 4.8% in the third quarter—the weakest in a year. Fixed-asset investment, including real estate, fell 0.5% in the first nine months, marking the first decline since the pandemic in 2020.

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