Chinese Factory PMI Improves but Remains in Contraction: Economic Deterioration or Soft Landing? — PMI of 49.2 Challenges Investors' Judgment

Chinese Factory PMI Improves but Remains in Contraction: Economic Deterioration or Soft Landing? — PMI of 49.2 Challenges Investors' Judgment

2025年12月02日 14:35

1. What Does "Improved Yet Recession" Mean?

In November, China's Manufacturing PMI (Purchasing Managers' Index) was 49.2. Although it slightly improved from October's 49.0, it still remained below the 50 line, indicating "economic contraction." This marks eight consecutive months in negative territory.Investing.com


At first glance, headlines feature positive words like "improvement" and "rise," but the reality is more like “better among the bad”. The market is reacting with a mix of relief and concern.


Let's take a closer look at the numbers.


2. What is PMI? An Indicator Where the World Changes at "50"

PMI is an index derived from surveys asking purchasing managers about orders, inventories, and employment.

  • Above 50 … Economic expansion (better than the previous month)

  • Below 50 … Economic contraction (worse than the previous month)

It's a very straightforward system.


In November in China,

  • Manufacturing PMI: 49.2 (October 49.0)

  • Production Index: 50.0 (October 49.7)

  • New Orders Index: 49.2 (October 48.8)

All have improved from the previous month. However, the key point is that **all are still in the "barely negative territory."**State Council of China


According to government statistics, among them, the PMI for small and medium-sized enterprises improved significantly to 49.1, up 2 points from the previous month, while large enterprises slightly weakened to 49.3. The PMI for high-tech manufacturing exceeded 50 for the 10th consecutive month, indicating a structural shift.State Council of China


3. The Current Situation Described by the Numbers: "Weak but Not Collapsed"

3-1. Production Finally Reaches the "Neutral Line"

The fact that the production index reached 50 means that it is in a state of **"neither increasing nor decreasing."** Until October, it was contracting, so it can be read that factory operations are finally stabilizing.


The background includes,

  • inventory adjustments have run their course, and production has resumed in some areas

  • increased production in some sectors, such as agricultural processing and non-ferrous metalsState Council of China

These factors have been pointed out.


3-2. New Orders Seem to Have "Bottomed Out"

The new orders index also improved to 49.2, still in contraction territory. It is believed that infrastructure investment and public works in China are providing support, along with a slight recovery in domestic consumption.State Council of China


However, it is far from being called a "strong demand recovery,"

  • the prolonged real estate recession

  • concerns about employment and income

  • deflationary pressures

and other headwinds on the demand side remain strong.Reuters


3-3. Exports Are Still Heavy

New export orders have improved from October but still indicate contraction. The slowdown in the US and European economies, increased tariffs and regulations, and geopolitical risks are weighing down, highlighting the limitations of China's "external demand-dependent" manufacturing model.Investing.com


4. The Global Manufacturing "Endurance Contest"

China is not the only one struggling. In November, manufacturing in the Eurozone and Germany also returned to negative territory, indicating a global cooling of factory sentiment.Reuters


  • Eurozone Manufacturing PMI: Below 50 Again

  • Germany Manufacturing PMI: Dropped to the 48 Range

  • The US and Japan also in the "slight contraction to stagnation" range

Thus, the global landscape at the end of 2025 is "nowhere is particularly good."


Therefore, among investors, the view is

"It's not just a problem for China;the world's manufacturing is simultaneously slowing down."


This perspective is becoming mainstream. While China is seen as a risk, it's not yet a stage to solely blame it.


5. How the Market Viewed It: Stocks, Forex, Commodities

The PMI release itself was not a surprise, with numbers close to pre-announcement expectations.Bloomberg


As a result, the market reaction was generally limited,

  • Chinese stocks: Cyclical stocks are heavy, but high-tech and new energy are relatively firm

  • Forex: The yuan showed slight fluctuations against the dollar, with US monetary policy and the dollar index having a greater impact

  • Commodities: Resources sensitive to Chinese demand, such as copper and iron ore, are in a range market with short-term selling and buying back

These are the reactions that align with the "numbers as they are."


6. Reactions on Social Media: Pessimism, Cautious Optimism, On-the-Ground Perspective

Here, we organize and introduce common points of discussion seen on social media regarding similar news (Note: These are not quotes from specific real accounts but summaries of typical comments).


6-1. Pessimists: "Can't Be Fooled by Number Manipulation"

On X (formerly Twitter) and investor forums, posts with this tone are often noticeable.

  • "Even if they say 'improvement' after eight consecutive months below 50... the real economy is still cold."

  • "Both exports and domestic demand are weak. Unless structural problems are solved, slight increases in numbers are meaningless."

  • "There will be no full recovery until the aftermath of the real estate bubble is resolved."

The common message among pessimists is **"Statistics are soft, but the factory floor is hard and cold."**


6-2. Cautious Optimists: "Maybe the Worst is Over"

On the other hand, traders analyzing charts and macro-enthusiast individual investors often make comments like these.

  • "The index has been negative for eight months, but the pattern of bottoming out → flat → slight improvement is common in the late stages of a recession."

  • "If inventory adjustments progress, even a slight return in exports could push PMI above 50."

  • "High-tech manufacturing and new energy remain strong. Only the traditional heavy industries are weighing things down."

In other words, they are drawing a scenario of **"not expecting a V-shaped recovery, but gradually bottoming out."**


6-3. On-the-Ground Perspective: "Orders Are Back, But Profits Are Thin"

On Chinese domestic forums and Asian business social networks, users claiming to be factory managers or engineers sometimes voice these opinions.

  • "The production line is moving more than before, but the demands for discounts are tough, and profit margins remain low."

  • "Loans for small and medium-sized enterprises have increased, but repayment conditions are strict, and cash flow is still tight."

  • "We want to invest in energy-saving and automation, but lack the funds for initial investments."

Even if the numbers show "improvement," corporate profits and cash flow remain challenging. The struggles on the ground that are not visible in the PMI are evident.


7. The Chinese Government's Message and Policy Direction

Regarding the latest PMI, the Chinese government emphasizes

  • improvements in both production and demand

  • continued expansion in high-tech manufacturing and emerging industries

  • the effects of support for small and medium-sized enterprises and innovation promotion measures are beginning to show

highlighting the positive aspects.State Council of China


On the other hand, the Non-Manufacturing PMI worsened slightly to 49.5, and the **"Composite PMI,"** including the service sector, is at 49.7, indicating that the overall economy is still in contraction.State Council of China

← Back to Article List