The stimulus bazooka is firing blanks
The numbers are in. They are ugly. Despite the media frenzy surrounding Beijing’s September stimulus blitz, the manufacturing sector has just issued a cold, hard reality check. The National Bureau of Statistics (NBS) reported an October Manufacturing PMI of 49.1. This is not just a miss; it is a structural failure. While the market expected a rebound above the 50.0 expansion threshold, the reality is a sixth consecutive month of contraction.
Investors who bought into the September rally are now facing the ‘catch.’ The rally was built on liquidity, but the factories are built on demand. That demand is missing. According to the latest market data from Bloomberg, the Hang Seng Index has already begun retracing its ‘stimulus gains’ as traders realize that lowering interest rates does nothing to fix a global lack of appetite for Chinese goods.
A visual of the manufacturing decay
The following chart illustrates the Purchasing Managers’ Index (PMI) performance from May to October 2025. Note the brief, artificial spike in September followed by the immediate collapse in October.
The cannibalization of private enterprise
The headline figure hides a darker divergence. The gap between the official NBS data (which skews toward State-Owned Enterprises) and the Caixin manufacturing survey (which tracks private firms) is widening. While SOEs are being propped up by government-mandated credit, private manufacturers are being squeezed by rising input costs and shrinking export orders. Per Yahoo Finance reports from early this morning, the New Export Orders sub-index crashed to 47.2, its lowest level in over a year.
| Indicator (Oct 2025) | Value | Status |
|---|---|---|
| NBS Manufacturing PMI | 49.1 | Contraction |
| New Export Orders | 47.2 | Severe Slump |
| Input Price Index | 53.4 | Inflationary Pressure |
| Employment Index | 48.1 | Job Losses |
Input prices are rising while output prices are falling. This is a classic stagflationary trap for the manufacturing sector. Factories are paying more for raw materials but are forced to cut prices to move inventory. This 'race to the bottom' is destroying profit margins across the Pearl River Delta. The technical mechanism here is simple: overcapacity. China is producing more than the world wants to buy, and the domestic consumer is too spooked by the property crisis to pick up the slack.
The export engine is stalling under tariff pressure
The October data reflects the first full month of intensified tariff pressure from the European Union and North America. It is no coincidence that the slump deepened as trade barriers for electric vehicles and green technology solidified. The 'China Plus One' strategy is no longer a corporate theory; it is a visible line item in the PMI decline. Manufacturers are moving production to Vietnam and Mexico to circumvent the geopolitical crosshairs, leaving Chinese factory floors quiet.
Why the PBOC cannot fix this
The People's Bank of China (PBOC) cut the 1-year Loan Prime Rate (LPR) to 3.10% earlier this month. In a healthy economy, this would stimulate borrowing. In China, it is pushing on a string. Companies do not want to borrow to expand capacity when they already have warehouses full of unsold goods. The skepticism in the market stems from the fact that this is a demand-side crisis being treated with supply-side medicine.
The December 15 litmus test
All eyes are now fixed on the upcoming Central Economic Work Conference scheduled for mid-December. This will be the final opportunity for the leadership to pivot from 'liquidity injections' to direct 'household transfers.' If the policy outcome remains focused on infrastructure and industrial subsidies, the manufacturing PMI will likely start 2026 well below the 49.0 mark. Watch the New Orders sub-index closely. If it fails to break 48.5 by year-end, the 5% GDP target for the upcoming year is officially dead on arrival.
