Manufacturing at a Crossroads: HKUST Releases 2025 Q2 PMI Forecasts for Mainland China

As the trade war escalates, the global economy is under increasing strain, generating significant uncertainty for the manufacturing sector. In the latest quarterly review on China’s manufacturing released by the Li & Fung Supply Chain Institute at the Hong Kong University of Science and Technology (HKUST), researchers revealed that, despite a  forecasted slowdown in China’s manufacturing production in Q2 due to the trade conflict, Chinese manufacturers are well-prepared to meet this challenge, emphasizing that China’s role in global supply chains is essential and cannot be easily replaced.

According to the report, China’s manufacturing sector recovered in the first quarter of 2025, with the headline Purchasing Managers Index (PMI) remaining in expansionary territory since February. However, after the US imposed an additional 145% tariff on Chinese products (with some exemptions), significant challenges arose for the manufacturing sector. Under such circumstances, researchers estimate that these tariffs, combined with a slowdown in the global economy, are expected to negatively impact China’s exports and manufacturing output. In particular, China’s exports to the US are projected to drop significantly, leading to a double-digit decline in overall exports in Q2 2025. Consequently, China’s industrial production growth is expected to slow markedly in Q2, while the headline PMI is projected to fall below 50.0, entering contraction territory during the quarter.

The report further highlights that small and medium-sized enterprises (SMEs) are expected to bear the brunt of the economic strain, as these companies typically depend more heavily on exports compared to larger firms. While the report suggests that the Chinese government is poised to ramp up targeted policy support in the coming months, such measures will likely require time to yield tangible results. 

Ms. Helen CHIN, Research Head of the Institute and lead author of the report, stated: “The escalating U.S.-China trade war will undoubtedly impact China’s export and manufacturing sectors, but the situation remains manageable. Since the trade war began in 2018, Chinese manufacturers have actively diversified their markets to reduce reliance on the U.S. Chinese firms have emerged as major global investors in overseas manufacturing, strategically building globalized supply chains. They are also shifting to higher-value segments of production, transitioning from acting as ‘direct suppliers’ to overseas markets to becoming critical suppliers of key materials and components for other manufacturing hubs. In essence, ‘Made in China’ is evolving into ‘Made by China’—or even ‘Made by China, for China.’”

As a key dataset reflecting the country’s economic growth, PMI is widely utilized for its reliability in forecasting critical economic indicators such as gross domestic product (GDP). In China, the National Bureau of Statistics distributes questionnaires to 3,200 manufacturing enterprises every month to compile PMI data based on their responses about purchasing activities and supply chain conditions. In collaboration with the National Bureau of Statistics of China and the China Federation of Logistics & Purchasing, the research team has been leveraging their proprietary PMI datasets to draft and disseminate monthly reports and quarterly analysis reports on China’s manufacturing sector over the years, providing insights into the current state of China’s manufacturing sector. 

Established in 2024 by HKUST and Li & Fung, the Li & Fung Supply Chain Institute aims to accelerate the creation, global dissemination, and practical application of new knowledge and technologies for managing supply chains. Through engaging in collaborative research, exchanges, professional development and executive education, the Institute is dedicated to driving real-world impact across the region and globally, while contributing to Hong Kong’s development as a multinational supply chain management center.