China factory growth stalls as export orders weaken, cost pressures persist

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China’s manufacturing sector lost momentum in May as export demand softened and businesses continued to grapple with rising costs, highlighting challenges facing the world’s second-largest economy despite strength in services and advanced manufacturing.

The official manufacturing purchasing managers’ index slipped to 50.0 in May from 50.3 in April, according to data from the National Bureau of Statistics. The reading, which matched economists’ expectations, sits on the dividing line between expansion and contraction and marks the weakest level in three months.

Production remained relatively stable, but new orders edged into contraction territory. Export demand deteriorated more sharply, with new export orders falling below the growth threshold after expanding in April.

Analysts said the decline was driven largely by weaker overseas demand for consumer goods, adding pressure on Beijing to boost domestic spending and reduce the economy’s dependence on exports.

China’s growth has been weighed down by a prolonged property downturn, soft consumer spending and a sluggish labor market. In response, policymakers have pledged reforms aimed at addressing imbalances between supply and demand while accepting a more modest economic growth target for 2026.

Manufacturers also continue to face higher input costs. A measure of raw-material prices remained firmly in expansion territory, indicating that costs are still rising, although the pace of increases slowed from April. Analysts said higher input prices are continuing to filter through to finished goods.

External factors have added to the strain. Rising energy prices linked to disruptions in the Middle East have increased costs for many manufacturers, particularly in petrochemicals and other upstream industries.

Not all sectors struggled. High-tech manufacturing and equipment producers outperformed the broader factory sector, benefiting from demand tied to semiconductors, artificial intelligence infrastructure and inventory stockpiling by customers concerned about future price increases.

Meanwhile, China’s non-manufacturing PMI, which covers services and construction, returned to growth territory at 50.1 in May from 49.4 in April. Services activity reached its strongest level in nine months, helped by holiday-related travel spending and government efforts to expand the service sector as a source of economic growth.

The mixed data suggest China’s economy remains uneven, with resilient services and technology-related industries offsetting weakness in exports and traditional manufacturing.

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