Reinvigorating Chinese Manufacturing: A New Bull Case for Industrial and Commodity Sectors?

The Chinese private-sector manufacturing sector has long been a barometer of the country's economic health, and recent data suggests a tentative but uneven rebound. With the official manufacturing PMI hitting a one-year high of 50.5 in March 2025 and the RatingDog private-sector PMI surging to 51.2 in September 2025, policymakers and investors are scrutinizing whether this signals a durable recovery. However, the path to sustained growth remains fraught with challenges, including weak domestic demand, U.S. tariffs, and structural imbalances between upstream and downstream industries. For investors, the question is whether this partial rebound offers a compelling bull case for industrial and commodity sectors—or if it masks deeper vulnerabilities.

Policy-Driven Stimulus and Sectoral Rebalancing

China's government has deployed a mix of fiscal and monetary tools to prop up private-sector activity. A 50-basis-point cut to the reserve requirement ratio by the People's Bank of China (PBOC) in 2025 injected liquidity into the economy, while a RMB300 billion trade-in program for electronics and home appliances aimed to stimulate domestic consumption, according to a CNBC report. These measures align with broader "anti-involution" policies designed to curb cutthroat competition and overcapacity in industrial sectors. The results have been uneven: upstream industries like steel and non-ferrous metals saw profits surge by 37.5% year-on-year in August 2025, driven by price stabilization and reduced overcapacity, according to a CNBC analysis. In contrast, downstream sectors such as electric vehicles (EVs) and solar panels face weaker demand despite government subsidies, highlighting structural imbalances, according to China Briefing.

Upstream Sectors: A Fragile Recovery

The steel industry, a bellwether for China's infrastructure and construction sectors, has stabilized in 2025 amid cautious real estate recovery and infrastructure spending. However, profitability remains under pressure due to razor-thin margins and global trade resistance, including anti-dumping measures in the EU and U.S., as noted in the OECD Steel Outlook 2025. Non-ferrous metals like copper also show subdued demand, with imports declining as buyers rely on inventories amid price volatility, according to a Reuters report. While the government has curtailed steel production growth targets for 2025, the sector's long-term outlook remains clouded by global overcapacity and decarbonization challenges, according to Panda Perspectives.

Downstream Sectors: Overcapacity and Global Pushback

China's EV and solar industries exemplify the dual-edged nature of its manufacturing rebound. Despite surging private-sector investment—accounting for 76% of global clean-tech factory investment in 2024—these sectors are grappling with overcapacity and international tariffs. The U.S. Inflation Reduction Act and EU anti-dumping duties have curtailed Chinese EV exports, according to a Reuters investigation, while domestic automakers engage in price wars to offload excess inventory. Similarly, solar panel producers face margin compression as global demand outpaces China's ability to absorb overcapacity. Yet, these sectors remain critical to China's green industrial strategy, with USD 88 billion allocated to grid and storage infrastructure in 2025, according to an IEA analysis.

Investment Trends: Private vs. State Dynamics

Private-sector investment in China's industrial sectors has slowed, with fixed asset investment growth in electrical machinery and equipment manufacturing declining by 7.8% in June 2025, per NBS data. Meanwhile, state-owned enterprises have outpaced private firms in profit growth, with state-sector profits rising 50% year-on-year compared to 13.2% for private companies, according to a PIIE tracker. This divergence underscores the government's role in shielding strategic sectors from market volatility. However, private capital is still active in high-tech and clean-energy niches, particularly in AI, robotics, and early-stage venture capital, suggesting pockets of resilience, per a PitchBook report.

Conclusion: A Cautious Bull Case

The partial rebound in China's private-sector manufacturing activity presents a mixed picture for investors. Upstream sectors like steel and non-ferrous metals offer near-term opportunities amid policy-driven stabilization, while downstream industries such as EVs and solar face headwinds from overcapacity and global trade barriers. The government's emphasis on rebalancing supply and demand, coupled with fiscal stimulus, could underpin a broader recovery—but only if domestic demand strengthens and external pressures ease. For now, a selective approach favoring upstream commodities and high-tech manufacturing, while hedging against downstream risks, appears most prudent.