China’s factory activity likely contracted for a second consecutive month in May, signaling ongoing struggles amidst trade tensions with major export markets, according to a Reuters poll released on Friday. The factory sector, which has been crucial to China’s economic recovery, continues to face challenges as the trade war with the U.S. and the European Union weighs heavily on manufacturers.
PMI Forecast Reflects Ongoing Contraction
A survey of 21 economists suggests that China’s official purchasing managers’ index (PMI) for May is expected to be 49.5, up from April’s reading of 49.0 but still below the 50-point threshold that separates growth from contraction. The PMI result reflects continued contraction in factory activity, despite a slight improvement from the previous month.
Impact of the U.S.-China Trade War
The world’s second-largest economy is currently facing a two-front trade war with both the United States and the European Union. Analysts are concerned that these tensions could undermine China’s fragile export-led recovery unless the country can resolve the tariff disputes with both Washington and Brussels. President Donald Trump’s decision to impose tariffs of up to 145% on Chinese goods comes at a particularly challenging time, as China grapples with sluggish income growth, deflation, and a prolonged property crisis.
EU Investigation Into Anti-Dumping Measures
In addition to the U.S. tariffs, the European Union has recently initiated an investigation into whether anti-dumping measures are needed for Chinese imports of passenger car and light lorry tyres. Talks between the EU and China regarding tariffs on Chinese-made electric vehicles have also added to the growing tension. In response, China has threatened to retaliate by targeting European brandy and dairy imports.
China’s Economic Strategy Moving Forward
Despite these external pressures, China’s policymakers have relied heavily on exports to support the economy’s fragile recovery following the pandemic. However, they have also begun to shift focus toward stimulating domestic demand more aggressively. Analysts expect Beijing to introduce further monetary and fiscal stimulus in the coming months to stabilize growth and shield the economy from the adverse impacts of tariffs.
Economic Growth Outlook
China’s economy expanded faster than expected in the first quarter, and the government has set a growth target of around 5% for the year. However, analysts warn that U.S. tariffs could derail this momentum, shifting the outlook for China’s economic performance. The official PMI for May will be released on Saturday, with the private sector Caixin survey set to follow on June 3, where analysts expect a slight improvement to 50.6 from 50.4.
