China’s factory activity slows down in October, missing expectations, private survey shows

China’s factory activity growth in October missed market expectations, dragged down by a sharper drop in new export orders, as trade tensions with the U.S. intensified during the month, according to a private survey released Monday.

The RatingDog China General Manufacturing PMI, compiled by S&P Global, dropped to 50.6 in October from the six-month high of 51.2 in September, missing analysts’ expectations of 50.9 in a Reuters poll.

New export orders fell at the quickest pace since May, which the survey respondents attributed to “rising trade uncertainty.”

New business and output both expanded at slower rates in October compared to the previous month, with business confidence slipping to its lowest level in six months, the survey showed. “When assessing the one-year outlook for production, firms were the least upbeat in six months,” it said.

A gauge on employment at the factories, however, showed the first expansion since March, rising to the highest level since August 2023.

Staying above the 50-benchmark that separates growth from contraction, the private survey numbers were better compared to the official survey released last Friday that showed manufacturing activity falling to 49.0, its worst contraction in six months.

Private surveys, previously conducted by Caixin and S&P Global, have usually painted a better picture than official polls over the past years as they have focused more on export-oriented manufacturers.

The RatingDog private survey covers 650 manufacturers and collects responses in the second half of each month while the official PMI surveys a larger sample of over 3,000 companies at month-end.

With the extension of the U.S.-China trade truce and expected recovery in export orders, the manufacturing PMI is likely to rebound modestly in the coming months as business confidence stabilizes, said Dongming Xie, managing director and head of Asia macro research at OCBC Bank.

China and the U.S. reached a trade truce last week following a meeting between American President Donald Trump and his Chinese counterpart, Xi Jinping, in South Korea, stabilizing relations after an escalating trade battle that had sparked fears of a global economic downturn.

Under the agreement, the U.S. will lower the fentanyl-linked tariffs on Chinese goods by half to 10%, taking the total rate on Chinese goods to around 47%, in response to China pausing its sweeping export controls on rare earth metals.

The U.S. will suspend the implementation of the 50% ownership “penetration rule” under export controls and the Section 301 investigation into China’s maritime, logistics and shipbuilding sectors.

Beijing will also terminate antitrust and anti-dumping investigations targeting American chip companies, including those into Nvidia Corp and Qualcomm Inc, the White House said on Saturday. Beijing will also resume purchases of American soybeans and other agricultural and energy products.

Goldman Sachs raised its forecast for China’s GDP for 2025 last week, encouraged by the U.S. trade detente and Beijing’s determination to advance manufacturing competitiveness and further boost exports. The Wall Street bank expects China’s real GDP growth to reach 5% this year, 4.8% in 2026, up from 4.9% and 4.3%, respectively.

Chinese manufacturers have sought to diversify their export markets since the start of the year to rely less on the U.S. and more on Southeast Asia and European markets. Chinese exports to the U.S. have declined by double digits year-over-year every month since April, falling  of this year compared to the same period last year.

That decline was largely offset by increased exports to Southeast Asia, which have jumped 14.7% this year as of September, the European Union, which rose 8.2%, and Africa, which grew over 28%. China’s overall exports grew 6.1% in the first three quarters this year, while imports fell 1.1%.

Despite resilient exports, the world’s second-largest economy has shown fresh signs of strain, with growth slowing to 4.8% in the third quarter, its slowest in a year. Fixed-asset investment, which includes real estate, unexpectedly contracted 0.5% in the first nine months of the year, the first such decline since pandemic-hit 2020.

The high base in the fourth quarter last year — with a 5.4% GDP growth — on the back of a blitz of stimulus measures in September will weigh heavily on the growth rate for the current quarter, Neo Wang, China strategist at Evercore ISI, said in a note on Sunday.

The fading effect of government consumption subsidies and the protracted housing downturn will also continue to suppress growth for next year, Wang added.