(Yicai) June 3 -- China’s manufacturing sector ended a seven-month expansion streak in May to shrink at the fastest pace in 32 months, according to a widely watched private gauge.

The Caixin manufacturing purchasing managers’ index fell to 48.3 last month from 50.4 in April, according to data released today by financial media group Caixin. It is the first reading since last September to come in below the 50-point threshold that separates expansion from contraction and is the lowest figure since September 2022.

The official manufacturing PMI released by the National Bureau of Statistics on May 31 rose to 49.5, up from a 16-month low of 49 in April, while remaining in contraction territory for the second straight month. The Caixin PMI focuses on small and private firms, the official PMI mainly reflects activity among large, state-owned enterprises.

Caixin’s data revealed a significant contraction in both supply and demand. New orders fell to the lowest since October 2022, partly as a result of the impact of the US’ reciprocal tariff policy. New export orders also declined further, remaining deeply in contraction territory.

Owing to weak demand, production fell for the first time in 19 months, sliding to the lowest since December 2022. Caixin’s findings indicate a marked decline in both supply and demand for capital goods.

Despite the external pressures, business sentiment improved, supported by hopes for a better trade environment. Manufactures also indicated that they expect export market growth to help drive sales later this year.

Wang Zhe, senior economist at Caixin Insight Group, cautioned that multiple headwinds still cloud China’s economic outlook. Uncertainties in the external trade environment are rising, and internal structural challenges persist, he said.

Key economic indicators have weakened considerably since April, as pressure on the economy has increased significantly, Wang added. He emphasized the need to reassess the effectiveness of previous stimulus policies and introduce targeted measures based on real-time conditions.

Most importantly, boosting domestic demand must return to the fundamentals of increasing income, Wang said. Policymakers should focus on improving employment conditions, enhancing social security, boosting disposable incomes, and restoring confidence among market participants, he concluded.

Editor: Emmi Laine