China’s National Bureau of Statistics reported that the manufacturing PMI for May 2025 rose to 49.5, up from April’s 49.0. However, this remains below 50, indicating contraction for the second month in a row. Large companies showed improvement with an expanding PMI of 50.7, while medium and small enterprises recorded lower PMI scores of 47.5 and 49.3, respectively. The production sub-index grew to 50.7, and new orders made a slight recovery to 49.8. Employment improved but stayed below the growth threshold at 48.1, while supplier delivery times were stable at 50.0. In the non-manufacturing sector, the PMI was 50.3, showing slight expansion but falling short of the expected 50.6. Construction activity dipped to 51.0, while services edged up to 50.2. Strong performance was seen in industries like rail, air transport, postal services, telecoms, and IT, all scoring above 55.0. In contrast, real estate and capital markets remained below 50. New orders increased slightly but were still weak at 46.1, with contributions from construction and services. Input and selling prices continued to decline, although at a slower pace. Employment remained weak at 45.5, but business expectations, despite a slight decrease, stayed optimistic at 55.9. China plans to unveil new financial policies in mid-June 2025 as anticipation builds for further economic stimulus.

Underwhelming Momentum in Manufacturing

Looking at the May numbers from the National Bureau of Statistics, we see a mix of small improvements but an overall lackluster performance. The manufacturing PMI stands at 49.5, an improvement from April’s 49.0, but it still indicates the sector is contracting, just at a slower pace. A PMI below 50 shows a decline in general activity. Notably, large companies reported growth with readings above 50, while medium and smaller firms struggled. This gap creates complicated signals across production levels and demand. The production sub-index increased to 50.7, giving a hint of optimism, yet new industrial orders rose only slightly to 49.8. While this represents some improvement, it does not signal a full return of demand. Employment remains a challenge. With a figure of 48.1, job losses are still occurring, though the decline is less severe than in the previous month. Stronger hiring would signal a more consistent recovery. In the non-manufacturing sector, there are signs of growth, but it’s not particularly impressive. The PMI at 50.3 shows slight expansion but falls short of expectations. When forecasts were for 50.6, a number just above the break-even point suggests weaker service momentum than policymakers envisioned. The decline in construction activity to 51.0 does not provide much reassurance, especially given the sector’s importance in past recovery efforts.

Divergence in the Service Sector

Examining the service sector further reveals a split between declining and thriving categories. Transport and tech-related areas, such as air, rail, IT, and postal services, are performing well with scores in the mid-50s, indicating strong activity. Meanwhile, real estate and financial services, especially capital markets, are still contracting and struggling even before any new credit or fiscal policy is announced. New orders in the service and construction sectors increased slightly, but at 46.1, they indicate customers are still hesitant. Demand is not robust, and any improvements seem inconsistent. Input and selling prices are also decreasing, but the decline is slowing down. This ongoing price deflation may indicate softer consumption or reluctance to restock materials, a trend to keep an eye on. Workforce numbers remain concerning in the service sector as well. A reading of 45.5 is weak and shows that businesses are not hiring. Even if intentions are steady, actions have not followed through. Despite this, future expectations remain high, suggesting that companies are hopeful but not yet ready to act. A score of 55.9 reflects confidence, but unless new policies lead to real changes, this optimism may not hold much weight. Overall, the key takeaway is the gap between sentiment and actual performance. There is clear anticipation for government support, with further measures expected in mid-June. This might involve coordination with monetary or lending policies. Until those measures are in place, traders should focus on actual data rather than just forecasts. Market responses in equities and rates may remain subdued until we see significant improvements in investment and consumption numbers. Recent months hint at a fragile recovery, but not one that is reliable yet. For now, fluctuations in certain futures contracts suggest that traders are being cautious until stimulus plans are clearly defined and implemented. It’s important to watch for updates on infrastructure spending, measures supporting private businesses, and incentives aimed at boosting consumer demand. Keeping an eye on sector-specific performance—especially in real estate, services, and logistics—will provide the best short-term insights. Changes are happening at a gradual pace, but they remain uneven; trading strategies should reflect this reality. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now