China’s manufacturing PMI has stayed below 50 since April, while IP growth has remained robust. Industrial transformation towards high-end manufacturing partly explains the deviation from norm. A PMI reading of 49.3 (rather than 50) appears to be a more appropriate dividing line between expansion and contraction, in our view, Standard Chartered’s economists Hunter Chan and Moriarty Lam report.
Industrial transformation underway
“China’s PMI survey – which offers an early gauge of real activity – appears to be inconsistent with hard data recently. For instance, China’s official manufacturing PMI remained in contractionary territory (below 50) for six straight months from April to September, implying a m/m decline in manufacturing activity. Meanwhile, industrial production (IP) growth remained resilient at 6.2% y/y in 8M-2025 and seasonally adjusted m/m growth remained positive.”
“The likely difference between the PMI survey sample composition and China’s industrial structure (which has been transitioning to more high-end and high-value-added sectors) may partly explain the disparity. The high-energy-consuming manufacturing sector has likely been a key drag on the headline PMI. Meanwhile, the share of hi-tech manufacturing and equipment manufacturing in total IP continued to expand to a new high as of H1-2025, with China continuing to promote innovation and green transformation. Other factors, such as the performance of sub-indices and SMEs, and the broader scope of IP, could also explain the deviation.”
“Based on data for the past five years, a headline manufacturing PMI reading of 49.3, rather than 50, appears to be a more appropriate dividing line between expansion and contraction, in our view. As such, the September headline PMI of 49.8 likely indicates solid m/m expansion in IP despite a below-50 reading.”