China’s Manufacturing Sector Shows Signs of Recovery Amid Trade Challenges

Overview of Manufacturing Growth in June 2025

In June 2025, China’s factory activity among export-oriented manufacturers unexpectedly returned to growth, according to a private survey conducted by Caixin and S&P Global. The manufacturing Purchasing Managers’ Index (PMI) rose to 50.4, surpassing expectations and rebounding from a contraction in May. This growth marks the eighth month of expansion in the manufacturing sector over the past nine months, indicating improving market conditions despite ongoing trade disruptions.

Comparison Between Private and Official PMI Surveys

• The Caixin PMI survey, which focuses on over 500 export-oriented firms and is compiled mid-month, showed growth.
• The official PMI, surveying over 3,000 companies primarily in upstream sectors and conducted at month-end, reported a contraction for the third consecutive month.
• Analysts attribute the divergence to differences in survey timing, company coverage, and the delayed impact of the U.S.-China tariff reduction announced in mid-May.

Key Drivers of Manufacturing Expansion

1. Production Growth: Production expanded at the fastest pace since November, supported by better trade conditions and promotional activities.
2. New Orders: New domestic orders increased, although new export orders declined for the third consecutive month, signaling potential challenges ahead.

Challenges Facing the Manufacturing Sector

• Employment: Hiring remains cautious with a decline in workforce numbers, especially in consumer-goods manufacturing, leading to increased work backlogs.
• Profit Margins: Intense market competition has forced manufacturers to cut prices to boost sales, negatively impacting profit margins.
• Business Optimism: Overall optimism has weakened due to a complex external environment and insufficient effective domestic demand.

Trade Dynamics and Export Trends

Chinese exporters have accelerated shipments to avoid anticipated U.S. tariff increases following the expiration of a 90-day trade truce in mid-August. While exports to the U.S. have significantly declined, shipments to alternative markets such as Southeast Asia and the European Union have helped sustain overall export performance. However, economists warn that the front-loading of exports is tapering, and smaller exporters are disproportionately affected by ongoing trade tensions.

Progress on U.S.-China Trade and Fentanyl Dispute

• Negotiations are reportedly advancing towards resolving the fentanyl-related trade dispute, potentially leading to the removal of a 20% fentanyl-related tariff on Chinese goods.
• China has recently added two fentanyl precursors to its list of controlled chemicals and expressed willingness to collaborate with the U.S. on drug control efforts.

Emphasis on Sustainable Development Goals (SDGs)

SDG 8: Decent Work and Economic Growth

• The manufacturing sector’s recovery contributes to sustained economic growth and productive employment opportunities.
• However, cautious hiring practices and employment declines highlight the need for policies promoting decent work and job security.

SDG 9: Industry, Innovation, and Infrastructure

• Growth in production and adaptation to changing trade conditions demonstrate industrial resilience and innovation.
• Addressing overcapacity and fostering sustainable industrialization remain critical for long-term sector health.

SDG 12: Responsible Consumption and Production

• Manufacturers face pressure to balance competitive pricing with sustainable production practices.
• Efforts to optimize resource use and reduce waste are essential amid intense market competition.

SDG 17: Partnerships for the Goals

• Ongoing collaboration between China and the U.S. on trade and drug control issues exemplifies the importance of international partnerships.
• Such cooperation supports the peaceful resolution of disputes and promotes global economic stability.

Conclusion

China’s manufacturing sector exhibits signs of recovery despite complex trade challenges and market competition. The sector’s performance has significant implications for achieving multiple Sustainable Development Goals, particularly those related to economic growth, industrial innovation, responsible production, and international cooperation. Continued monitoring and supportive policies are essential to sustain growth, improve employment conditions, and foster sustainable development in line with the SDGs.

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 8: Decent Work and Economic Growth
   • The article discusses manufacturing growth, employment challenges, and economic activities in China’s manufacturing sector.
2. SDG 9: Industry, Innovation, and Infrastructure
   • Focus on manufacturing production, export-oriented firms, and industrial activity in China.
3. SDG 17: Partnerships for the Goals
   • Trade relations between China and the U.S., tariff negotiations, and international cooperation on issues like fentanyl control.

2. Specific Targets Under Those SDGs Identified

1. SDG 8: Decent Work and Economic Growth
   • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.
   • Target 8.5: Achieve full and productive employment and decent work for all women and men.
2. SDG 9: Industry, Innovation, and Infrastructure
   • Target 9.2: Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product.
   • Target 9.4: Upgrade infrastructure and retrofit industries to make them sustainable.
3. SDG 17: Partnerships for the Goals
   • Target 17.10: Promote a universal, rules-based, open, non-discriminatory and equitable multilateral trading system under the World Trade Organization.
   • Target 17.16: Enhance the global partnership for sustainable development.

3. Indicators Mentioned or Implied to Measure Progress

1. For SDG 8
   • Manufacturing Purchasing Managers’ Index (PMI) – measures manufacturing sector growth or contraction.
   • Employment levels in manufacturing – headcount changes and hiring plans.
   • Business optimism and profit margins – indicators of economic health and productivity.
2. For SDG 9
   • Manufacturing sector’s contribution to GDP (26% of China’s GDP in Q1) – measures industrial output.
   • New orders and production growth rates – reflect industrial activity and innovation uptake.
3. For SDG 17
   • Trade volume and export data – e.g., export orders, export percentages to the U.S. and other markets.
   • Tariff levels and trade dispute resolutions – measure progress in trade partnerships and cooperation.
   • International cooperation on fentanyl control – qualitative indicator of partnership effectiveness.

4. Table: SDGs, Targets and Indicators

Source: cnbc.com