China factory activity shrinks for the eighth consecutive month as policymakers weigh stimulus and structural reforms.
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| A worker at the body stamping workshop for electric vehicles inside the BYD Co. factory in Zhengzhou, Henan province, China, on Wednesday, November 5, 2025. Photo by Qilai Shen/Bloomberg/Getty Images |
China's factory activity shrank for the eighth month in November, while the services sector also cooled, underlining the challenges facing policymakers as they balance structural reforms with potential stimulus measures to revive domestic demand. The latest data from the National Bureau of Statistics (NBS) revealed that the manufacturing purchasing managers' index (PMI) edged up slightly to 49.2 in November from 49.0 in October, staying below the 50-point threshold that separates expansion from contraction. The reading was in line with a Reuters poll of analysts forecasting 49.2, highlighting persistent weakness in China’s industrial sector.
The data points to ongoing struggles among manufacturers to maintain a post-COVID-19 recovery, particularly amid the lingering effects of trade tensions with the United States and global economic uncertainties. Output in the manufacturing sector remained stagnant, with the sub-index holding at 50.0. While both new orders and new export orders recorded modest improvements compared with October, they still fell short of the level required to indicate sustained growth.
Despite the sluggish performance, some economists remain cautiously optimistic about China’s broader economic trajectory. “We maintain our view that government may hold off on major policy support until the first quarter next year, since this year’s growth target appears broadly achievable,” said Yuting Yang, an economist at Goldman Sachs, in a research note. China has set its 2025 growth target at approximately 5 percent, a figure policymakers consider attainable even amid persistent industrial weakness.
Historically, China’s policymakers have relied on two primary levers to support economic growth. First, the industrial sector has been used as a counterweight when household consumption softens, with factories ramping up production to bolster exports. Second, large state-funded infrastructure projects have been deployed to stimulate activity and maintain momentum. However, with global economic growth slowing, a lingering property sector crisis, and mounting local government debt, officials are finding it increasingly difficult to jump-start the economy without risking long-term fiscal imbalances.
Small manufacturing firms, however, displayed some resilience in November. The NBS reported that the PMI for small manufacturers rose by two percentage points to 49.1, reaching a six-month high. Analysts suggest this uptick may be partially supported by export stability, as well as reduced U.S. tariffs on Chinese goods, which have helped relieve some pressure on manufacturers facing international competition. Tianchen Xu, senior economist at the Economist Intelligence Unit, noted that this improvement reflects a limited recovery in niche segments despite broader industrial stagnation.
The non-manufacturing PMI, which captures data from the services and construction sectors, fell to 49.5 in November from 50.1 in October. This marks the first contraction in nearly a year, highlighting a slowdown in economic activity outside of manufacturing. The services sector in particular declined to its lowest point since December 2023, as the uplift from the October holiday period faded. According to Huo Lihui, a statistician at the NBS, “The business activity index for real estate and household services sectors both fell below 50, indicating subdued market activity.”
Even with the decline in current activity, the services outlook sub-index remained positive at 55.9, suggesting that enterprises are moderately optimistic about future demand and market development. Analysts interpret this as an indication that firms anticipate a gradual recovery in service-based spending, particularly if policies encourage consumption in key areas.
Policymakers weigh reforms and stimulus
China’s leadership faces a delicate balancing act. On one hand, structural reforms are necessary to address long-standing imbalances in supply and demand, lift household consumption, and manage significant local government debt. Many provinces, with economies comparable in size to small nations, continue to rely heavily on central government support, limiting their ability to independently drive growth. Implementing reforms could be politically and economically challenging, especially at a time when external trade pressures add additional risk.
On the other hand, stimulus measures remain an attractive short-term option. China unveiled a plan to boost consumption earlier in the week, focusing on upgraded consumer goods in rural areas and emerging sectors, including pet care, anime-related products, and trendy toys. Policymakers are evaluating whether targeting a portion of consumption subsidies toward services could invigorate economic activity and support employment. Xu of the EIU noted, “If the government can earmark a third of its consumption subsidies to the services sector in 2026, that would provide a great lift to the industry and its employment.”
China’s industrial slowdown occurs against the backdrop of global economic uncertainty, continued fallout from U.S. trade policies, and a property market struggling to recover from years of debt accumulation. Many businesses have found themselves caught between weak domestic demand and the challenge of maintaining export competitiveness. This combination of pressures is reflected in the manufacturing PMI remaining below the critical 50-point mark for eight consecutive months, signaling that the sector is operating under contractionary conditions.
While small firms show some resilience, larger enterprises, particularly those heavily reliant on export markets or capital-intensive production, continue to face headwinds. Analysts caution that without careful policy calibration, industrial weakness could spill over into broader economic indicators, potentially affecting employment, household incomes, and domestic consumption.
Despite these challenges, there are reasons for cautious optimism. Partial improvements in small-scale manufacturing and the steady outlook from service enterprises suggest that targeted policy interventions, particularly those boosting consumption, could stabilize activity in the months ahead. Policymakers are likely to take a measured approach, balancing the need for reforms with the risks of over-stimulating the economy. The focus may include promoting higher value-added sectors, supporting rural consumer spending, and ensuring that local government finances remain sustainable.
For now, China factory activity shrinks, and the services sector shows signs of cooling, leaving authorities with difficult decisions about whether to prioritize structural reforms, short-term stimulus, or a combination of both. With growth targets still within reach, many observers expect the government to adopt a cautious, incremental approach, carefully monitoring industrial and consumer trends before committing to major interventions.
