China’s manufacturing sector continued to contract in November, marking the eighth consecutive month of decline, while services cooled, highlighting the delicate balancing act facing policymakers between pursuing structural reforms and stimulating domestic demand.
The manufacturing purchasing managers’ index (PMI) edged up slightly to 49.2 in November from 49.0 in October, remaining below the 50-point mark that separates growth from contraction. The output sub-index stalled at 50.0, while new orders and new export orders improved modestly but stayed in contraction territory.
“The data reflects manufacturers’ difficulty in sustaining a recovery after COVID-19, compounded by ongoing trade tensions with the U.S.,” said Goldman Sachs economist Yuting Yang. “We maintain our view that major policy support may be held off until the first quarter next year, since this year’s growth target of around 5% appears broadly achievable.”
Services Sector Cools
The non-manufacturing PMI, which includes services and construction, fell to 49.5 from 50.1 in October, shrinking for the first time since December 2022. Services activity dropped to its lowest since December 2023, as the temporary boost from October holidays faded.
“The business activity index for real estate and household services both fell below 50, indicating subdued market activity,” said NBS statistician Huo Lihui.
Despite the slowdown, the services outlook sub-index remained optimistic at 55.9, signaling that enterprises expect future demand to improve.
Small Manufacturers See Modest Gains
Smaller manufacturers fared slightly better, with their PMI rising two points to 49.1, a six-month high, driven in part by export resilience and the easing of U.S. tariffs on Chinese goods, according to Tianchen Xu, senior economist at the Economist Intelligence Unit.
Policy Dilemma: Reforms vs. Stimulus
China’s policymakers face a difficult choice: implement painful structural reforms to correct supply-demand imbalances and tackle heavy local government debt, or introduce stimulus measures to prop up household spending and economic growth. Traditional levers such as boosting industrial production or infrastructure spending are constrained by a global slowdown, a protracted property crisis, and fiscal limits at local government levels.
On Wednesday, the government unveiled a plan to boost consumption, focusing on rural upgrades and sectors such as pet products, anime, and trendy toys. Xu noted, “If the government can earmark a third of its consumption subsidies to the services sector in 2026, that would provide a significant lift to the industry and employment.”
As China navigates this complex economic landscape, the coming months will test the government’s ability to balance reform, growth, and social stability while managing both domestic and international pressures.