China's small and medium sized manufacturing industry contracted in April as Caixin's Purchasing Managers' Index (PMI) recorded 49.5 for the month, slightly higher than the official PMI data released by the national statistic agency, which focuses on large manufacturers. While the expansion of supply slowed down and overall demand fell, foreign demand improved slightly. Nonetheless, business expectations remain strong.

Softer rises in manufacturing supply

While the manufacturing production index remained above the expansion threshold in April, firms reported that new orders were less than expected, restraining output growth as a consequence, according to the Caixin survey.

External demand rebounded slightly

External demand rebounded marginally from a contraction in March, moving modestly into expansion territory in April. Export activity became more convenient with the lifting of pandemic restrictions, supporting the improvement of sales. 

Optimism around the outlook remains strong

Despite slowing supply and shrinking demand, manufacturers maintain strong expectations for future production and operation. The confidence index rose to its second highest level in two years. As the impact of the pandemic continues to fade, businesses are confident that customer demand will strengthen and market conditions will improve further, underpinning growth expectations.

"In the future, relevant policies should focus on expanding domestic demand, stabilizing employment and improving expectations, as well as improving the monetary transmission mechanism and creating a virtuous circle of economic development," said Dr. Wang Zhe, senior economist at Caixin Insight Group.