China Factory Activity Beats Forecasts in April, But Momentum Slows as Demand Softens

China’s factory activity showed modest resilience in April, with the official manufacturing PMI coming in at 50.3, slightly above market expectations. The reading signals continued expansion, though at a slower pace compared to the previous month when activity reached a one-year high.

The data points to a mixed economic picture. While manufacturing remains in expansion territory, growth in new orders has cooled, with the sub-index slipping to 50.6 from 51.6 in March. This suggests that demand, while still positive, is losing some strength.

At the same time, the broader economy showed signs of weakness. The non-manufacturing PMI dropped to 49.4, falling into contraction territory as both services and construction activity declined. This divergence indicates that domestic demand remains uneven, with consumer-driven sectors lagging behind industrial production.

Economists note that manufacturing continues to benefit from stable output and improving export demand. Notably, the new export orders index rose above 50 for the first time in two years, signaling a potential rebound in external demand despite global uncertainties.

However, rising input costs remain a concern. Elevated oil prices, driven by ongoing tensions in the Middle East, are pushing up production costs and could weigh on margins if sustained. This adds another layer of pressure for manufacturers already navigating a complex global environment.

A separate private survey from S&P Global and RatingDog painted a more optimistic picture, with manufacturing PMI reaching 52.2 — its strongest level since late 2020 — supported by solid demand, operational improvements, and new product launches.

Looking ahead, policy direction will remain crucial. Chinese officials are expected to prioritize boosting domestic demand as part of broader economic stabilization efforts. Upcoming trade discussions between Xi Jinping and Donald Trump may also play a key role in shaping the outlook, particularly as uncertainties around tariffs and global trade persist.

Overall, while China’s manufacturing sector continues to expand, the slowdown in momentum and weakness in services suggest that the recovery remains fragile and uneven.