China’s factory slump eases in May after tariff truce with US

China’s manufacturing activity contracted for a second consecutive month in May, but at a slower pace than April, thanks in part to a temporary easing of trade tensions with the United States.

According to official data released on May 31 by the National Bureau of Statistics, the manufacturing purchasing managers’ index (PMI) rose to 49.5 in May from 49.0 in April, aligning with economists’ forecasts.

PMI is measured on a scale from 0 to 100, where 50 marks the cutoff between expansion and contraction. A reading above 50 indicates expansion, and below 50, a contraction.

The improvement follows a 90-day trade truce reached earlier this month between Beijing and Washington, during which both sides agreed to slash previously imposed tariffs.

The US reduced its average tariffs from 145 per cent to around 30 per cent, while China cut its own duties on American goods from 125 per cent to 10 per cent. The temporary rollback helped boost trade flows and revive some export activity.

However, the recovery remains fragile. The new export orders sub-index climbed to 47.5 from 44.7 in April, and the new orders sub-index rose to 49.8 from 49.2—still below the key 50-point level. This signals continued contraction in overall demand despite some stabilisation in external trade.

The non-manufacturing PMI, which includes services and construction, slipped slightly to 50.3 in May from 50.4 the previous month, remaining just above the expansion threshold. The composite index, combining both manufacturing and services, edged up to 50.4.

Tariff pause brings temporary relief

The recent tariff pause provided a modest lift to factory output, with some Chinese exporters reporting resumed orders from US partners. Still, the broader outlook remains clouded by uncertainty.

On May 30, US President Donald Trump accused China of violating the newly reached trade agreement, declaring in a Truth Social post that he would no longer be “Mr Nice Guy”. He followed up by announcing a doubling of steel and aluminium tariffs to 50 per cent, a move that has once again rattled global trade sentiment.

Tensions were further inflamed as the US began revoking visas for Chinese students, prompting a formal protest from Beijing.

Despite the recent improvement in PMI data, economists remain cautious. According to a Bloomberg survey conducted in late May, China’s GDP is projected to grow 4.5 per cent in 2025, below the government’s 5 per cent target. While exports are expected to grow 1.1 per cent—a modest upgrade from April’s forecasted contraction—ongoing deflationary pressures and weak domestic consumption continue to weigh heavily on the economy.

To counter the slowdown, China’s central bank recently introduced new stimulus measures, including interest rate cuts and a significant liquidity injection. Analysts believe that while the tariff reprieve may ease the need for more aggressive action, Beijing may still need to deploy further support if trade talks stall or domestic momentum weakens.

For now, the slight rebound in manufacturing offers a tentative sign of stability, but with trade tensions escalating once again, the sustainability of that recovery remains in question.