China Services PMI Rises, Manufacturing Slumps as Xi Weighs Trade, Stimulus Path

Markets on Edge: Trump’s Xi Comments, Weak US Data Stir Trade Concerns

Trade developments between the US and China continue to drive market sentiment. Markets reeled from US accusations of China breaching the trade war truce and China’s response. However, reports of President Trump planning to call China’s President Xi Jinping this week supported risk sentiment.

On Wednesday, June 4, President Trump escalated trade tensions, stating:

“I like President Xi of China, always have, and always will, but he is VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH!!!”

Trump’s comments fueled speculation about a potential call, though also hinting at stalled negotiations. With the trade truce extended to August 31, the lack of visible progress remains a concern.

Overnight US economic indicators indicated a weakening labor market. The ADP reported a 37k increase in private sector jobs, well below an expected 115k rise. Meanwhile, the ISM Services PMI declined from 51.6 in April to 49.9 in May, falling below the neutral 50 level and raising recession concerns. Trump responded swiftly, stating:

“ADP NUMBER OUT!! Too Late Powell must now LOWER THE RATE. HE is unbelievable!!! Europe has lowered NINE TIMES!”

Trump’s comments underscored rising concerns that US trade policies and monetary conditions may impact the economy. China may interpret the Fed’s stance and weak data as weakening the US’s bargaining position.

Beijing has also held back from delivering fresh stimulus but remains willing and able to deliver more to bolster China’s economy. President Xi Jinping may see little reason to accommodate US demands if the US economy is showing early cracks.

China Services Sector Activity Accelerates

While US economic indicators begin to flash red, numbers from China show a split between services strength and manufacturing weakness. China’s Caixin Services PMI increased from 50.7 in April to 51.1 in May, aligning with consensus. According to the May survey:

• New business growth boosted service sector activity despite new export business falling for the first time in 2025.
• Services providers increased staffing levels in May, snapping two months of job cuts.
• Rising purchase prices and wage growth drove average input prices higher, though selling prices declined for the fourth month.

Dr. Wang Zhe, Senior Economist at Caixin Insight Group, remarked on the May survey, stating:

“Employment expanded. The labor market ended its two-month streak of contraction and recorded a modest expansion in May, with the corresponding gauge reaching a high not seen since November. Some companies continued to cut headcounts to control costs, while others hired more workers in response to increasing demand.”

While services sector activity improved, China’s manufacturing data painted a gloomier picture. The Caixin Manufacturing PMI fell to 48.3 in May, down from 50.4 in April.

Crucially, the PMI slid below the neutral 50 level and to its lowest since Q3 2022 as new orders dropped at the fastest rate in over two-and-a-half years. Weak overseas demand impacted the labor market, potentially dampening the effects of Beijing’s stimulus measures targeting household consumption.

The slump in manufacturing activity overshadowed the upswing in services sector momentum, leaving the Caixin Composite Index at 49.6 in May, down from 51.1 in April. Notably, private sector output fell for the first time since December 2022, with employment declining slightly.

Markets Eye Beijing for Stimulus and Trade Updates

Investors reacted to mixed PMI data as the focus returned to US-China trade headlines.

On June 5, Mainland China’s CSI 300 and Shanghai Composite Index edged 0.06% and 0.02% lower, respectively. In contrast, the Hang Seng Index rallied 0.94%, extending its year-to-date (YTD) gains to 19%, driven by tech stocks. The Roundhill China Dragons ETF is up 21% YTD, outperforming the Nasdaq Composite Index, which has gained just 0.78% YTD, weighed by a 2.7% fall in the MAG7.

This divergence highlights market expectations for Chinese stimulus and skepticism around US efforts to constrain China’s tech sector.

Outlook

With trade talks delicately poised, market sentiment remains vulnerable to headlines. A breakdown in negotiations could see steep tariffs reintroduced, including a 145% levy on Chinese goods and a 125% tariff on US exports. Conversely, signs of progress would likely lift demand for Hong Kong and mainland equities.

Follow our coverage as US-China tech tensions reshape global markets and consult our economic calendar.