China's manufacturing stalls, large firms expand while small ones shrink

China's manufacturing sector stopped growing in May, with the official index hitting the threshold between expansion and contraction. This masks a split: large factories are still expanding, but medium and small ones are shrinking, and overall demand is weak.

The headline number for China's manufacturing activity hides a significant internal divergence. Large state-backed or well-capitalized firms continue to expand, while the smaller, often private, enterprises face contracting orders and employment. This suggests a two-speed economy within the sector, where smaller players bear the brunt of economic headwinds.