China cannot shake its manufacturing decline. For the eighth consecutive month, factory activity contracted in November, marking the longest such streak since Beijing began tracking the data.

The official manufacturing purchasing managers' index came in at 49.2, the National Bureau of Statistics reported Sunday. That was a tick better than October's 49.0 reading but still below the 50 threshold that separates expansion from contraction. Economists surveyed by Bloomberg had expected 49.4.

The non-manufacturing index, which covers services and construction, delivered worse news. It dropped to 49.5 from 50.1 in October—the first contraction for that measure in nearly three years. Weakness in real estate and residential services dragged the number down.

Together, the figures paint a picture of an economy that remains sluggish despite a temporary reprieve in the trade war with Washington. Output stalled entirely in November, with that sub-index landing at exactly 50.0. New orders improved modestly but stayed in contraction territory.

Trade Truce Offers Limited Relief

The data arrives weeks after Presidents Donald Trump and Xi Jinping met in South Korea on October 30 and hammered out a temporary ceasefire in their tariff battle.

Under that deal, Trump agreed to cut U.S. tariffs on Chinese goods from 20 percent to 10 percent. Xi, for his part, suspended certain export restrictions on rare earth minerals for one year. China also committed to resuming purchases of American soybeans after orders dried up during the harvest season.

The agreement generated cautious optimism that Chinese exports might regain footing in the American market. But one month is not enough time to assess whether shipments have actually picked up, and the broader manufacturing picture suggests the truce has done little to reverse underlying weakness.

Chinese exports unexpectedly fell in October, with shipments to the United States dropping 25 percent. Industrial profits declined 5.5 percent that month, the sharpest drop since June. The cumulative profit growth for major industrial firms through October slowed to 1.9 percent, down from the January-September pace.

A diplomatic row with Japan has added fresh uncertainty. Beijing is now considering economic countermeasures against Tokyo, injecting another variable into an already complicated trade environment.

Domestic Demand Remains the Problem

The trade war gets headlines, but China's deeper problem is closer to home. Consumer spending has softened for five straight months, the longest such slide since shops shuttered during the Covid pandemic more than four years ago.

The property market, which once powered so much of China's growth, continues to act as a drag. Home prices keep falling. Real estate investment keeps declining. The NBS said weakness in the real estate and residential services sectors helped push the non-manufacturing index into contraction.

"The business activity index for real estate and household services sectors both fell below 50, indicating subdued market activity," said Huo Lihui, an NBS statistician.

Part of November's softness stemmed from the fading effects of China's Golden Week holiday in early October. That annual celebration typically lifts travel and consumer spending, and the subsequent return to normal shows up in the data the following month.

But the issue runs deeper than holiday timing. Chinese authorities rolled out trade-in subsidies earlier this year for home appliances and electric vehicles, giving consumption a temporary boost. Those programs are winding down, and analysts expect sales to fall once the incentives disappear.

"Signals on domestic demand have been mixed," said Zichun Huang, China economist at Capital Economics.

Lynn Song, chief economist for Greater China at ING, put it more bluntly in a recent note: "Policymakers appear to be delaying further policy support."

Small Firms Show Signs of Life

Not everything in the data pointed downward. Small manufacturers posted their best showing in six months, with their PMI jumping two percentage points to 49.1. Medium-sized firms edged up to 48.9. Large manufacturers, by contrast, weakened.

Tianchen Xu, senior economist at the Economist Intelligence Unit, suggested the improvement among smaller companies may reflect export resilience and the tariff reduction Trump announced.

High-tech manufacturing remained in expansion for a tenth consecutive month, though just barely, at 50.1. Equipment manufacturing and consumer goods producers slipped below the 50 mark. Energy-intensive industries rebounded slightly to 48.4.

Business sentiment improved as well. The index measuring expectations for production and operations rose to 53.1. Companies in non-ferrous metal smelting and aerospace-related equipment reported particularly strong confidence, with readings above 57.

The services sector outlook also remained positive despite the overall contraction. The services business outlook sub-index came in at 55.9, suggesting that companies in that sector still expect conditions to improve.

Certain service industries held up better than others. Railway transportation, telecommunications, broadcasting and satellite transmission, and financial services all posted readings above 55. Construction activity improved to 49.6, helped by stronger expectations for near-term growth.

Beijing Holds Back on Stimulus

Chinese officials set a growth target of around 5 percent for 2025. The economy expanded 4.8 percent in the third quarter, down from earlier in the year but still within striking distance of that goal.

That proximity appears to have convinced policymakers they can afford to wait before rolling out additional support.

"This year's growth target is likely to require minimal additional support to be reached," Song wrote.

Goldman Sachs economist Yuting Yang reached a similar conclusion. "We maintain our view that government may hold off on major policy support until the first quarter next year, since this year's growth target appears broadly achievable," Yang said in a research note.

Beijing has not been entirely passive. Since late September, authorities have injected roughly 1 trillion yuan—about $141 billion—in additional stimulus. That included unused bond quota for provinces to expand investment and repay debts owed to companies, along with new funding for policy banks.

On Wednesday, China announced a plan to boost consumption, targeting upgrades of consumer goods in rural areas and niche sectors like pet products, anime merchandise, and "trendy toys."

But the measures fall short of the kind of large-scale intervention some economists believe is necessary to address structural imbalances in the economy. Policymakers have signaled they want to lift household consumption and reduce reliance on exports and investment, but they have been reluctant to pull the trigger on major reforms that could prove politically difficult.

For decades, Beijing has relied on two levers when growth slowed: ramping up the industrial machine to boost exports, or unleashing state-funded infrastructure projects. Neither option works as well as it used to. Global demand has cooled. The property crisis has crimped local government revenues. Provincial debt loads have ballooned.

"The EIU's Xu said that if the government can earmark a third of its consumption subsidies to the services sector in 2026, that would provide a great lift to the industry and its employment."

Looking ahead, analysts expect China's growth to slow further. Forecasts for the current quarter point to the weakest performance since the final three months of 2022, when the country was emerging from its Covid Zero lockdowns.

Net exports contributed nearly a third of China's growth this year. With that engine sputtering, the pressure on domestic consumption to pick up the slack will only intensify.