Industry analysts attribute much of the recent volatility to shifting trade dynamics between China and the United States. Tensions flared in October after Washington expanded export controls and then-President Donald Trump threatened tariffs of up to 100% on Chinese goods. Although negotiators from both countries reached a compromise later that month in South Korea, the uncertainty surrounding tariff policy disrupted order flows and prompted some manufacturers to scale back production schedules.
The strains are reflected in China’s official manufacturing purchasing managers’ index, which slipped to 49.0 in October, a six-month low and firmly below the 50-point threshold that separates expansion from contraction. Factory managers reported weaker new orders and a pullback in export demand, while inventory levels climbed, highlighting an imbalance between supply and demand.
Beijing’s campaign to reduce excess capacity in heavy industries such as steel, aluminum and cement added another layer of pressure. While regulators view capacity cuts as essential for improving long-term efficiency, the short-term effect has been to restrain output and compress margins for companies operating in oversupplied segments.
Foreign trade frictions were not limited to the United States. In early November, China signaled plans to halt all seafood imports from Japan amid a diplomatic dispute over Taiwan. The announcement raised concerns of broader retaliatory measures and further clouded the external outlook for exporters already coping with sluggish global growth.
Domestic demand showed only tentative signs of stabilization. Consumer prices edged 0.2% higher in October from a year earlier, ending a stretch of negative readings that had fueled fears of deflation. Core inflation, which excludes volatile food and energy costs, increased 1.2%, the fastest pace since February 2024. Economists noted, however, that a sizeable share of the core reading reflected rising gold prices rather than a fundamental improvement in household spending.
Some private-sector analysts argue that the headline inflation figures mask underlying weakness in the service sector. They point to soft rental prices and sluggish retail sales as indications that households remain cautious, a view supported by elevated savings rates and sluggish credit growth. According to the latest International Monetary Fund projections, China’s economic expansion is expected to moderate in 2025 as structural headwinds and external uncertainties weigh on activity.
Meanwhile, growth in capital expenditure has slowed. Several provinces have postponed large infrastructure projects in response to tighter fiscal conditions, and privately owned manufacturers continue to delay equipment upgrades until demand visibility improves. The pullback in investment has restricted revenue prospects for suppliers of machinery, industrial robots and construction materials.
Policy makers face a complex balancing act. On one hand, Beijing has signaled willingness to support the economy through targeted tax incentives, lower financing costs for small and medium-sized enterprises and selective easing of property curbs. On the other, authorities remain committed to deleveraging heavily indebted sectors and containing systemic financial risks, leaving limited room for large-scale stimulus.
Looking ahead, analysts are watching November and December data for evidence that the October setback was temporary. A sustained improvement in trade relations, firmer domestic spending during the year-end holiday period and continued progress in reducing excess capacity could help stabilize profits. However, further escalation in geopolitical tensions or a sharper downturn in global demand would likely prolong the sector’s earnings slump.
Crédito da imagem: Future Publishing via Getty Images
