China’s factory activity slows down in October, missing expectations, private survey shows
News Summary
The RatingDog China General Manufacturing PMI dropped to 50.6 in October from a six-month high of 51.2 in September, missing analysts’ expectations of 50.9. New export orders fell at the quickest pace since May, attributed by respondents to “rising trade uncertainty.” New business and output expanded at slower rates, with business confidence slipping to a six-month low. However, the employment gauge at factories showed its first expansion since March, reaching the highest level since August 2023. While the private survey remained above the 50-benchmark, it was better than the official PMI of 49.0, which indicated contraction. A US-China trade truce was reached following a meeting between President Donald Trump and Xi Jinping in South Korea, stabilizing relations. The US will lower fentanyl-linked tariffs on Chinese goods by half to 10%, bringing the total rate to around 47%, in response to China pausing its export controls on rare earth metals. The US also suspended the 50% ownership “penetration rule” under export controls and the Section 301 investigation into China’s maritime, logistics, and shipbuilding sectors. Beijing will terminate antitrust and anti-dumping investigations targeting American chip companies like Nvidia and Qualcomm and resume purchases of US soybeans and other agricultural and energy products. Goldman Sachs raised its forecast for China’s GDP for 2025 to 5% (from 4.9%) and for 2026 to 4.8% (from 4.3%). Chinese manufacturers have diversified their export markets, with declines in exports to the US largely offset by significant increases to Southeast Asia, the European Union, and Africa.
Background
China's manufacturing activity showed signs of deceleration in October 2025, as indicated by the RatingDog PMI data, which, despite outperforming official figures, missed market expectations. A sharp decline in new export orders was a primary drag, closely linked to ongoing trade tensions with the United States. Notably, a US-China trade truce was reached following a meeting between Presidents Trump and Xi in South Korea, aiming to stabilize bilateral relations. Under this agreement, the US committed to lowering some tariffs and suspending certain investigations, while China agreed to pause rare earth export controls, terminate probes against American chip companies, and resume purchases of US agricultural and energy products. This economic data shift against a backdrop of policy adjustments highlights the direct impact of such changes on market expectations.
In-Depth AI Insights
Will the US-China trade truce effectively boost China's manufacturing confidence and exports? - In the short term, the truce agreement will undoubtedly generate positive sentiment, as evidenced by Goldman Sachs' upward revision of GDP forecasts. The termination of investigations into US chip companies and the resumption of agricultural purchases are direct benefits for specific sectors. - However, persistent weakness in export orders and business confidence slipping to a six-month low suggest that deeper structural issues and concerns about future trade policy uncertainty have not been fully resolved. Chinese manufacturers have actively diversified export markets, which could signal a strategic, rather than merely cyclical, decline in their reliance on and confidence in the US market. - Given the highly unpredictable nature of the Trump administration's trade strategy, a truce might be viewed as a temporary reprieve rather than a long-term solution, leading businesses to remain cautious in their long-term planning. How will China's slowing economic growth and real estate downturn impact global supply chains and commodity demand? - As the world's manufacturing hub and a major commodity consumer, China's economic slowdown, particularly the contraction in fixed-asset investment (including real estate), will directly suppress global demand for industrial raw materials, energy, and machinery. - For global supply chains, while China's export diversification strategy partially offsets the decline in US exports, overall weak demand could lead to global overcapacity, consequently affecting commodity prices. This could pose challenges for resource-rich nations and industrial goods suppliers dependent on Chinese demand. - In the long run, if China's structural economic transformation continues, with a rising share of consumption and services and a decline in heavy industry and real estate investment, it will reshape global trade patterns and the structure of commodity demand. What are the strategic considerations behind China's pause on rare earth export controls and termination of investigations into US chip companies in the current geopolitical climate? - China's decision to pause rare earth export controls and terminate investigations into US chip companies, while seemingly a response to US tariff reductions and investigation suspensions, likely involves deeper strategic considerations for space and stability. Against a backdrop of slowing factory activity and export pressure, avoiding further escalation of the trade war helps stabilize the domestic economy and provides a strategic breather externally, aligning with China's current interests. - Furthermore, this move may also aim to de-escalate technological tensions with the US, leaving room for future cooperation or competition in critical tech sectors (e.g., AI, 5G) rather than outright confrontation. It's a pragmatic strategy of making limited concessions when necessary to secure broader strategic benefits, such as avoiding full decoupling and buying time for Chinese enterprises to enhance global competitiveness. - For the US, the Trump administration's pursuit of specific interests (like fentanyl control, agricultural purchases) while using trade tools for leverage reflects its transactional diplomacy, forcing concessions from China in key areas.