China’s manufacturing sector showed signs of slowing in May, highlighting ongoing challenges for the world's second-largest economy and raising important considerations for Australian investors exposed to commodity markets.
According to official data released by China's National Bureau of Statistics (NBS), the Manufacturing Purchasing Managers' Index (PMI) eased to 50.0 in May from 50.3 in April, matching market expectations. While the reading remains at the threshold separating expansion from contraction, it marks the weakest level in three months and suggests industrial activity is losing momentum.
China’s National Bureau of Statistics Manufacturing PMI (Source: tradingeconomics.com)
The biggest concern came from external demand. New export orders fell sharply to 48.6 from 50.3 in April, slipping back into contraction territory. The decline indicates weaker global demand for Chinese goods, particularly consumer products, which could weigh on manufacturing output in the months ahead.
Cost pressures also remain elevated despite some easing. The raw material purchase price index declined to 60.5 from 63.7 in April but continued to signal rising input costs for manufacturers. Higher energy prices and supply-chain uncertainties have continued to pressure margins, particularly for energy-intensive industries.
Despite the softer headline figure, several sectors demonstrated resilience. High-tech manufacturing and equipment manufacturing recorded PMI readings of 52.9 and 52.1 respectively, reflecting ongoing demand for semiconductors, artificial intelligence-related technologies, and advanced industrial equipment. These sectors continue to benefit from China's long-term push toward higher-value manufacturing.
Meanwhile, China's services sector provided a brighter outlook. The Non-Manufacturing PMI rose to 50.1 from 49.4 in April, exceeding market expectations. Service-sector activity reached a nine-month high, supported by stronger tourism, transportation, telecommunications, and insurance-related activity. The Composite PMI Output Index also improved to 50.5, marking the third consecutive month of expansion in overall economic activity.
For Australian investors, China's economic performance remains particularly significant. As Australia's largest trading partner, China is a major consumer of Australian iron ore, coal, LNG, and other raw materials. Continued weakness in manufacturing and export demand could temper near-term demand for industrial commodities, potentially impacting resource-sector earnings and commodity prices.
However, softer manufacturing data may also increase expectations for additional policy support from Beijing. Any further stimulus measures aimed at boosting domestic demand and economic growth could provide medium-term support for commodity markets and Australian mining companies.
While the recovery in China's services sector is encouraging, the sharp decline in export orders suggests that industrial demand remains under pressure. Investors should continue monitoring Chinese economic indicators closely, as developments in China are likely to remain a key driver of sentiment across Australian resource and equity markets throughout 2026.
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