Chinese factories see strongest growth since March, PMI beats expectations

Chinese factories were a little louder in August, with activity expanding at the fastest pace in five months. A closely watched private survey, the RatingDog China General Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 50.5, up from 49.5 in July and higher than analysts had forecast.

A score of 50 and above signals growth, while anything south of 50 signifies a market contraction. For Chinese manufacturers who have seen the impact of tariffs and weak local demand firsthand, the activities of August may offer a measure of relief.

However, the official PMI data released a day earlier suggests that the country’s manufacturing sector is still in the contraction zone as it stands at 49.4, a 0.1 increase from its July index.

Analysts are suggesting that manufacturing hasn’t picked up due to uncertainties in ongoing US-China trade negotiations.

RatingDog tells a different story. “Notably, the manufacturing sector is helping the recovery, but this rebound is patchy,” said Yao Yu, founder of RatingDog. “The question is whether exports can stabilize and whether domestic demand can catch up.”

New orders pile up, exports struggle

Factories reported an increase in new domestic orders, the fastest rise since March, which left production lines backed up with unfinished work. But the picture was less rosy for exports. Orders from overseas partners fell for the fifth month in a row, reflecting cautious buyers and the uncertainty swirling around US–China trade negotiations.

The effects are already being felt abroad. American retailers importing holiday products such as artificial Christmas trees and festive decorations have cut back purchases to avoid tariff costs. For US shoppers, that means higher prices and fewer options this holiday season.

Still, Chinese manufacturers were cautious about celebrating too soon. Many chose not to hire more staff, cutting jobs instead for a fifth consecutive month, a reminder that the rebound has yet to build real confidence.

Asia’s mixed picture under tariff strain

China’s improvement stands out against a gloomier backdrop elsewhere in Asia, where the weight of US tariffs continues to bear down.

In Japan, factory activity shrank for the second month in a row. The country’s PMI edged up to 49.7 in August, but export orders tumbled at the sharpest pace since early 2024 as demand weakened in China, Europe and the US.

South Korea fared no better, recording a seventh straight month of contraction with a PMI of 48.3. Even though Seoul secured a tariff cut from Washington in July, lowering duties on its exports from 25% to 15%, the data suggest that the relief has yet to reach manufacturers.

Taiwan also reported weaker factory output, while the Philippines and Indonesia managed modest growth. India, meanwhile, was the outlier: its factories expanded at the fastest pace in 17 years, powered by strong domestic demand.

Still, economists warn that Washington’s newly imposed 50% tariffs on Indian exports could quickly slow that momentum.

China’s property market, still struggling with a debt overhang and weak sales, remains another drag on growth, limiting the ability of households to spend. Without a stronger domestic consumer base, analysts fear factories will remain exposed to external shocks.

Business confidence for the year ahead rose to its highest level since March, with many factory owners betting that expansion plans and an improving global outlook could keep orders flowing.

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