China’s manufacturing sector showed faint signs of recovery in September 2025, but the world’s second-largest economy remains mired in uncertainty as factory activity shrank for a sixth consecutive month. Official data released on September 30 by the National Bureau of Statistics (NBS) revealed that the manufacturing purchasing managers’ index (PMI) edged up to 49.8, a modest improvement from August’s 49.4. Yet, this figure lingers just below the crucial 50-point threshold that separates contraction from expansion, underscoring the persistent headwinds facing Chinese industry.
The PMI’s climb, while beating economists’ forecasts—Bloomberg’s survey had predicted 49.6—was hardly a cause for celebration. Instead, it extended a streak of contraction that began in April, marking the sector’s longest slump since 2019, according to the Associated Press. The September reading was the highest since March, suggesting some stabilization, but analysts say a robust rebound remains out of reach.
Several factors contributed to the slightly improved PMI. Production, new orders, inventories, and manufacturing jobs all nudged the index higher, offering a glimmer of hope. More detailed data showed that new orders and production both saw month-on-month improvements, suggesting that factories are at least moving more goods. However, as Stephen Innes of SPI Asset Management put it, “Factories are moving more goods, but they’re being forced to do it at thinner margins, like street vendors selling more bowls of noodles at half price just to keep the crowd coming.”
Despite these incremental gains, the broader picture remains one of sluggishness. China’s non-manufacturing PMI—which tracks activity in services and construction—slipped to 50.0 in September, its softest level this year and the lowest since November 2024. This decline was driven by a slowdown in new export orders and tepid domestic demand, a recurring theme in recent months. According to Huo Lihui, chief statistician at the NBS, “Overall economic output expansion in the country accelerated slightly” in September, but the momentum is still weak.
One of the few bright spots has been better-than-expected global demand, which has helped prevent a deeper slowdown. Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, noted that “export activities have been surprisingly resilient so far this year and helped to partly offset the weak domestic demand.” Yet, consumer prices in China fell in August at their fastest rate in six months, signaling ongoing struggles on the home front.
China’s economic challenges are compounded by lingering trade tensions with the United States. The ongoing trade war, which has seen both countries slap tariffs on each other’s goods, continues to cast a shadow over the manufacturing sector. While a truce on most reciprocal duties has been extended to November 10, 2025, uncertainty remains high. Hopes for a broader agreement hinge in part on a widely anticipated U.S. proposal to transfer ownership of TikTok to an American company—an issue that also requires Beijing’s approval. A face-to-face meeting between U.S. President Donald Trump and Chinese leader Xi Jinping is set for the end of October in South Korea, raising the stakes for both sides.
In the meantime, Beijing has been taking steps to shore up investor confidence and attract foreign capital. On September 30, China opened its stock option market to foreign investors, allowing qualified foreign institutional investors to trade options for hedging purposes. The move, announced by the Shanghai Stock Exchange, is part of a broader effort to increase the appeal of yuan-denominated assets and promote international use of the Chinese currency. Currently, five option products based on exchange-traded funds are traded on the Shanghai exchange. The deregulation could give foreign investors a much-needed tool to hedge risks in China’s vast $14 trillion stock market.
This opening comes on the heels of other measures to lure global investors, including expanded access to China’s bond repurchase market and an increased daily net trading limit on the cross-border Swap Connect scheme. Authorities have also unveiled plans to boost offshore yuan business in Hong Kong and opened an operation center in Shanghai to promote the global adoption of the central bank’s digital yuan.
Policymakers in Beijing are now under growing pressure to roll out additional stimulus measures, possibly as early as the fourth quarter of 2025. ING’s chief economist for Greater China pointed out that the latest data “could put pressure on policymakers to roll out new stimulus as early as next quarter.” Some economists are even hoping for a rate cut by the People’s Bank of China before year’s end, especially after the U.S. Federal Reserve’s recent rate cut. However, the Chinese central bank left its key lending rates unchanged in September, signaling a cautious approach.
China’s economic malaise is not confined to manufacturing. The country has been grappling with a prolonged slump in the property sector, elevated unemployment, and weak household spending, all of which have weighed on overall growth. Consumer sentiment remains fragile, and the government appears willing to tolerate a slowdown in the second half of the year as long as it does not threaten the full-year growth target of five percent. “Since the GDP growth was above five percent in the first half, the government may tolerate the slowdown in the second half as long as it doesn’t jeopardize the full-year growth target of five percent,” wrote Zhiwei Zhang.
With both manufacturing and services sectors hovering near contraction territory, the mood among investors and businesses is one of cautious optimism mixed with persistent anxiety. Markets are likely to remain on edge, reacting to every new data release and policy update from Beijing. Global trade, commodity prices, and the fortunes of multinational companies with exposure to China all hang in the balance as the country navigates these choppy economic waters.
As the world watches for signs of a genuine turnaround, one thing is clear: China’s economic moves ripple far beyond its borders. Any major policy shift from Beijing has the potential to lift not just China, but also its trading partners and global markets. For now, the wait for a solid rebound continues, with the next few months likely to prove pivotal for the trajectory of both China’s economy and the wider world.
