Tariff rubber meets the road: China’s factory PMI dives to 49, deepest slump since Dec ’23

When Trump’s 145% tariff hammer finally made contact, China’s factory engine sputtered. April’s official manufacturing PMI plunged to 49.0 (vs. 50.5 in March), signaling outright contraction for the first time since December 2023. That snap-back below the 50 breakeven line confirms what we’ve been flagging: trade friction has morphed from headline risk into real-money pain trade.

We’re watching the downstream fallout in real time. New export orders cratered to their weakest reading since December 2022—and posted the steepest drop since April 2022’s COVID lockdown—underscoring how external demand is hemorrhaging. The employment subindex also hit its worst level since February last year, adding fuel to our view that policy makers will have to fire off targeted stimulus or risk a sharper slowdown.

On the financial plumbing side, the offshore yuan slipped another 0.1% to 7.27/dollar, while the CSI 300 barely budged—propped up by the not-so-invisible hand of the National Team backstop—trading in a tight range as offshore flows hesitated on fresh equity allocations. Despite Beijing clinging to its 5% growth blueprint, threading that needle now feels like juggling flaming swords. Authorities have rolled out targeted credit facilities and consumption‐boost measures but stopped short of full-throttle easing—so we’re left leaning into potential BoC-style rate cuts or fresh CNY defense to stabilize the tape and stall the carry-trade unwind.

Interestingly, the Caixin PMI bucked the trend at 50.4, hinting that smaller, export-oriented firms are hanging on; however, even there, the export subgauge indicates the tariff drag is taking its toll. In our view, this patchwork of readings solidifies our thesis: unless Beijing accelerates targeted fiscal and liquidity injections, the risk-on rally in Asian assets could falter—and China’s growth dial may need to be adjusted to the low-4% range. Strap in: the tariff tug-of-war is officially impacting China’s real economy, and things in China could get ugly.