China manufacturing PMI 50.5: what the surprise expansion says about Asia’s slowdown and Europe’s rebound

Asia started the week with a split-screen. In China, a closely watched private-sector manufacturing PMI surprised to the upside at 50.5 in August, the fastest expansion in five months and a break above the neutral 50 line. Across much of the region, however, factory gauges stayed stuck in contraction: Japan at 49.7, South Korea below 50, and Taiwan still soft. Layer in Eurozone manufacturing at 50.7—its first expansion since mid-2022—and the global map looks less like a rising tide and more like pockets of momentum separated by trade frictions and sector snags.
Why the China print matters: the improvement was rooted in stronger domestic new orders and a pickup in backlogs, signaling that internal demand is doing more of the lifting while export orders continue to shrink. Firms reported the steepest input-cost increase since late 2024, hinting at higher raw-material prices and supply bottlenecks, yet many manufacturers said they couldn’t raise selling prices much. That combination—rising costs and limited pricing power—keeps margins tight and argues for cautious hiring even as output improves.
Japan’s picture explains the drag elsewhere. The au Jibun Bank/S&P Global PMI rose from July’s lows but stayed below 50, with surveyors flagging the sharpest drop in export demand in roughly 18 months. Auto-related shipments have been hit particularly hard, and firms repeatedly cited weaker orders from China, Europe, and the United States. South Korea and Taiwan show similar symptoms in electronics and machinery, where the inventory cycle is still working its way through and global capex remains uneven.
Europe’s emergence into shallow expansion changes the calculus. If Eurozone PMI at 50.7 holds, it could become a partial offset to softer U.S.-bound orders for Asian exporters, especially in intermediate goods and capital equipment. The catch: the rebound is narrow and fragile, with Germany still just shy of 50 and optimism tempered by policy uncertainty. Even so, a steadier European order book could help stabilize parts of Asia’s supply chain heading into the holiday shipping window.
What to watch next:
Orders vs. exports in China. If domestic orders keep firming while export orders stop contracting, the 50.5 print could mark the start of a more durable recovery.
Prices paid and margins. Input-cost pressure without pricing power erodes profitability; watch whether selling prices finally respond.
Electronics cycle. Stabilization in semis and components would disproportionately benefit South Korea and Taiwan and could spill over to Japanese machinery.
Euro demand pulse. A sustained Eurozone PMI > 50 would offer Asia a second engine even if U.S. demand stays choppy.