China Factory Activity Flatlines in May as Iran War, Domestic Woes Cloud Growth Outlook

China’s manufacturing sector stagnated in May, with the official purchasing managers’ index slipping to a three-month low and signaling fresh headwinds for the world’s second-largest economy. The reading, released June 1, 2026, barely held above the 50-point threshold that separates expansion from contraction, underscoring the combined drag of the protracted Iran conflict and persistent domestic demand weakness. The May data marks the weakest factory activity since February, as spillovers from the Iran war disrupted energy supplies and global trade routes, while a property slump and cautious consumer spending continued to weigh on industrial output. Beijing has set an ambitious growth target near 5% for 2026, but analysts say the increasingly fragile manufacturing base complicates that goal. Policymakers face a narrowing path to revive momentum without stoking financial risks, leaving markets on edge ahead of expected fiscal and monetary support measures in the coming weeks.