Manufacturing output growth in China has been slower in recent years, with 2024 marking a difficult year. However, according to the most recent Interact Analysis’ quarterly Manufacturing Industry Output (MIO) Tracker, the country is turning a corner, with domestic demand and the housing market expected to start recovering in 2025, with a return to stronger growth from 2026 as domestic economic conditions further improve.

The following interview was conducted with Samantha Mou, Research Analyst at Interact Analysis, based on the latest quarterly forecasts from the MIO Tracker (a measure of manufacturing performance in monetary terms).

What was 2024 like for the Chinese manufacturing and machinery sectors and how did this affect the global landscape?

China’s manufacturing and machinery sectors experienced a challenging year in 2024, with several obstacles, including weak domestic demand, excess production capacity, and price competition. Demand has been sluggish in both the manufacturing and service industries due to weak consumer confidence. Moreover, the industrial capacity utilization rate in China remained at a low level in 2024, leading to intense competition and price wars across almost all manufacturing sectors.

The downturn has affected global growth rates in manufacturing industries that are relatively concentrated in China, such as cement, glass and metals production. In addition, growth pressure has led Chinese industrial product manufacturers to seek opportunities in overseas markets. However, overseas sales for these companies account for a limited proportion of overall sales, so the impact on the global landscape is currently relatively small.

What is the outlook for China’s manufacturing industry in 2025 and moving forward?

China has seen some signs of a return to steady growth and problems such as the housing market crisis easing. Stimulus policies have also been launched to support domestic consumption. For example, in the fourth quarter of 2024, China introduced consumer coupons, which have successfully boosted demand for home appliances.

In the manufacturing sector, China’s industrial capacity utilization improved, with excess capacity gradually absorbed. Inventories have been low for an extended period, so once demand is stimulated, it can be reflected relatively quickly on the production side. These factors indicate that despite the current sluggish growth, China’s manufacturing economy is returning to equilibrium.

What are the key factors you think will influence Chinese manufacturing over the short and longer-term?

The property market and consumer confidence are crucial to the recovery of China’s manufacturing sector in the short-term. While it is unlikely that China’s real estate market will return to its past era of rapid expansion, the stabilization of this sector will help the recovery of various industries along the supply chain. Restoration of consumer confidence, which is also related to the housing market, will help improve domestic demand and ultimately ease price competition in the manufacturing sector.

In the longer-term, China is becoming a more mature economy with it also being the largest manufacturing base in the world. It is estimated to account for 45% of global manufacturing industry output, we predict that growth will be constrained but steady, due to its size and level of development. Just like other developed economies, innovation and new technologies are key influencing factors for Chinese manufacturing in the longer-term.

China accounted for 45% of global manufacturing industry output in 2024

How has Interact Analysis’ forecast for China changed this quarter?

With the emergence of the positive factors mentioned above, we expect China’s manufacturing output growth rate to rebound to 3.2% in 2025, increasing from 2.0% in 2024.

In Q4 2024, supported by a series of stimulus policies, both market sentiment and manufacturing output started to improve. We have therefore slightly raised our 2025 growth forecast everso slightly; however, deflationary pressures, low consumer confidence and potential US-China trade conflicts are still expected to hinder growth in the short-term. As a result, recovery is more likely to be gradual in 2025, with stronger growth expected in 2026 and beyond.

Overall, our forecast for China’s MIO value CAGR from 2024 to 2029 remains at 3.5%, with the highest growth expected in 2026 and 2028, at 3.7% and 3.8%, respectively.

How will US tariffs affect Chinese manufacturing?

The threat of trade restrictions and tariffs make us relatively pessimistic about price levels in China in 2025. Blocked exports will exacerbate oversupply in China’s domestic market and put additional deflationary pressure on manufactured goods.

We have made downward adjustments to our growth forecasts for China’s automotive and electrical & electronics equipment sectors in 2025, primarily due to the expected impact of potential tariffs.

On the other hand, Chinese manufacturers will have more incentive to produce overseas to bypass tariffs, just as Chinese electric vehicle makers have set up factories in Europe. This will result in more activity overseas and can help these manufacturers to increase overseas sales.

Which manufacturing sectors do you think will be outliers in terms of performance this year and out to 2029? Which will perform most strongly? Which sectors will struggle?

In 2025, our forecasts for the transportation & other vehicles sector and the semiconductor & components sector are most positive, with growth forecasts of 6.7% and 5.9%, respectively. Demand for ships and high-speed trains, and the development of AI are key drivers behind the more promising outlooks. Traditional industries, such as wood & wood products, and pulp & paper are expected to recover more slowly from the downturn, with growth forecasts at 1.3% and 1.4%, respectively.

Out to 2029, the electrical & electronic equipment and semiconductor & components sectors are anticipated to perform most strongly, fueled by China’s emphasis on advanced manufacturing and continued investments in automation and machineries. The textile industry is expected to struggle as production continues to shift to Southeast Asia.

Interact Analysis’ Manufacturing Industry Output (MIO) Tracker forecasts out to 2029 and covers a total of 45 countries, across 72 manufacturing end user sectors, 30 machinery sectors and two points in the supply chain (machinery and manufacturing end-users). To learn more, get in touch with Samantha Mou directly: samantha.mou@interactanalysis.com.