Manufacturing activity is generally slowing down

In April, the Caixin China Manufacturing PMI fell from 51.2 in March to 50.4, marking the lowest point this year, but still above the boom-bust line (50), meaning the industry is still expanding, just at a significantly slower pace;

On the same day, the official PMI also showed a larger decline, indicating that both private and state-owned sectors are digesting the dual impact of slowing orders and cost pressures.

Divergence in new order structure and significant decline in export demand

New export orders saw the largest drop since July 2023, highlighting the direct impact of additional U.S. tariffs and global trade uncertainties on external demand;

Although new domestic orders have slightly increased, they mainly rely on existing backlogged orders, with little real new demand, raising doubts about the sustainability of future expansion.

Output, inventory, and supply chain response

Manufacturers are barely maintaining positive output growth by 'digesting existing stock before accepting new orders', but the growth rate has obviously slowed down;

Inventory levels continue to decline, with companies preferring to streamline inventory to reduce capital occupation;

Supplier delivery times have been extended, partly due to logistics bottlenecks caused by trade frictions, and partly reflecting insufficient willingness of downstream to pull goods;

Cost and price pressures

Weak demand for raw materials and intensified competition among suppliers are driving input costs down again;

While lower costs benefit profit margins, they also indicate that market price wars are intensifying, further eroding manufacturers' pricing power.

Labor market and corporate restructuring

Following a brief rebound in March, manufacturing employment contracted again in April, reflecting the dual impact of some workers leaving and corporate layoffs;

Restructuring and layoffs have become common measures: companies are actively cutting labor costs in response to reduced orders and cost pressures.

Policy environment and outlook

The Political Bureau meeting has committed to providing assistance to the enterprises and workers most affected by U.S. tariffs, aiming to stabilize employment and foreign trade;

Although authorities encourage export companies to turn to domestic sales, they face real obstacles such as weak domestic demand in the U.S., intense competition, thin profits, and difficulties in payment collection;

The Caixin Think Tank warns that the effects of U.S.-China tariffs will further manifest in the second and third quarters, suggesting that policies should be proactive, or else the manufacturing industry may face greater pressure in the second half of the year.

Comprehensive impacts and risk points

In the short term, external demand is difficult to recover, and the manufacturing expansion lacks momentum;

In the medium to long term, it depends on the timeliness and intensity of U.S. stimulus policies, including fiscal subsidies, credit support, and employment stabilization measures;

If stimulus measures fall short of expectations, China's manufacturing industry may experience a turning point from 'expansion to contraction' after the second quarter.