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China Manufacturing Sector Contracts in July as Tariffs Bite: Hang Seng and AUD/USD Dip

By:
Bob Mason
Published: Aug 1, 2025, 02:27 GMT+00:00

Key Points:

  • China’s Manufacturing PMI dropped to 49.5 in July, signaling a mild contraction.
  • New export orders contracted for the fourth straight month, worsening China’s external trade outlook.
  • Investors are eyeing Beijing’s next move as weak PMI data stoke expectations of fresh economic stimulus.
China Manufacturing Sector

S&P Global China General Manufacturing PMI Unexpectedly Contracts

China’s manufacturing sector unexpectedly contracted in July as new export orders dropped, underscoring the effect of US tariffs on trade terms.

The S&P Global China General Manufacturing PMI fell from 50.4 in June to 49.5 in July, dropping below the neutral 50 level. Economists had expected a decline to 50.2.

The July survey highlighted the following key trends:

  • Manufacturing output declined for only the second time since October 2023.
  • New order growth slowed in July.
  • New export orders contracted for the fourth consecutive month and at a faster pace than in June.
  • Manufacturers continued to reduce headcount, citing cost controls.
  • Higher raw material costs pushed average input prices up for the first time in five months.
  • Meanwhile, manufacturers lowered their selling prices amid intensifying competition.
  • Rising shipping and logistics costs pushed export charges higher.
  • Despite weakening demand and the competitive environment, sentiment improved but remained below the series average. Hopes that better economic conditions and promotional efforts would boost sales lifted sentiment.
China manufacturing sector activity.
More information in our economic calendar

Expert Views on China’s Manufacturing Sector

Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, commented:

“Central to the drop in production was a slowdown in new orders growth. While successful business development efforts within the domestic market were able to sustain higher new work inflows, overall sales growth was only fractional as demand from overseas remained subdued on the back of global trade uncertainty.”

On pricing, Jingyi Pan added:

“Pricing power also remained weak, with companies cutting their selling prices even amid a fresh rise in input costs.”

Aussie Dollar and Hang Seng React

The forex markets responded promptly to the PMI release. The AUD/USD fell from $0.64297 to a low of $0.64249. Despite the initial dip, the AUD/USD rebounded slightly and was up 0.02% at $0.64261 at the time of writing.

Aussie dollar weakens on China's PMI data.
AUDUSD – 3 Minute Chart – 010825

The Aussie dollar remains exposed to Chinese economic data, given that China accounts for one-third of Australian exports. With a trade-to-GDP ratio of over 50%, weaker demand from China could impact the Aussie economy and the RBA rate path.

During July’s press conference, RBA Governor Michele Bullock highlighted the potential impact of China’s trade terms and Beijing’s stimulus plans for the policy outlook, stating:

“Trade terms with China remain crucial. If China bolsters its economy with fiscal stimulus, that could cushion the impact of tariffs on Australia’s economy.”

The Hang Seng Index was up 0.18% to 24,819 ahead of the PMI release. However, the Index fell to a low of 24,745 in response to the PMI data, before steadying. At the time of writing, the Hang Seng Index was down 0.09% to 24,751.

Hang Seng Index falls as China's manufacturing sector contracts.
Hang Seng Index – 3 Minute Chart – 010825

Stimulus or Slump Ahead?

The continued decline in external demand will keep the market focus on US-China trade developments and Beijing. Stalled trade talks may pressure Beijing to introduce effective stimulus to boost domestic demand. AUD/USD and the Hang Seng Index could benefit from fresh measures. However, the absence of effective stimulus and weakening external demand could weigh on demand for the Aussie dollar and Hong Kong-listed stocks.

Discover strategies to navigate this week’s market trends here.

About the Author

Bob Masonauthor

With over 28 years of experience in the financial industry, Bob has worked with various global rating agencies and multinational banks. Currently he is covering currencies, commodities, alternative asset classes and global equities, focusing mostly on European and Asian markets.

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