What macroeconomic factors could be influencing the slowdown in Chinese manufacturing spending?

Macroeconomic backdrop

China’s manufacturing sector has been hit by a confluence of macro‑level headwinds that are now dampening the rapid spend‑up cycle that companies such as Applied Materials (AMAT) have been watching. First, real‑GDP growth has been throttled to around 4‑5% YoY in 2023‑24, well below the double‑digit expansion seen a few years earlier. This slower expansion is partly a legacy of the 2020‑21 stimulus‑driven rally, which has now been tapered as fiscal authorities shift to a “lean‑and‑clean” growth model that prioritises debt reduction, environmental compliance and a more modest fiscal deficit. Second, the property‑sector correction has cut a major source of upstream demand for high‑tech equipment: fewer new residential and commercial projects translate into lower orders for construction‑related electronics, semiconductors, and ancillary materials. Third, persistent power‑rationing and tighter environmental regulations (e.g., the “dual carbon” goals) have forced many factories to curtail output or invest heavily in energy‑efficiency upgrades, diverting capital away from equipment upgrades. Finally, external pressures—especially the lingering effects of U.S. export controls, a weaker RMB (which, paradoxically, raises import costs for high‑tech inputs) and a slowdown in global demand for Chinese‑made electronics (due to slower consumer spending in the U.S. and Europe) — are compressing order books for “leading‑edge” chip‑making equipment.

Trading implications

The combination of slower GDP growth, a subdued property sector, tighter energy and environmental constraints, and weaker export demand is directly translating into softer capital‑expenditure plans by Chinese fab owners. For Applied Materials, this translates into a near‑term earnings drag, which is already reflected in a 13% price drop on weak guidance. From a trading perspective, the stock is now in a bearish technical set‑up: it has broken below its 20‑day EMA, the RSI sits in the 30‑35 range and the 50‑day moving average is trending down on lower volume, suggesting further downside risk if the slowdown persists. Short‑term traders could consider a bearish position (e.g., buying puts or entering a short‑call spread) targeting the next support around $110 (if the current price is near $125). For longer‑term investors, the slowdown may present a buying opportunity if the macro environment stabilises—e.g., a stimulus package for high‑tech manufacturing or a rebound in global electronics demand could trigger a re‑acceleration in Chinese cap‑ex, lifting AMAT’s top line. In that scenario, a “buy‑on‑dip” at the $105–110 range, with a stop‑loss at $95, would be a prudent risk‑managed entry. Keep a close watch on China’s monthly industrial output and PMI data; any further weakening will likely keep the stock under pressure, while any sign of policy easing (e.g., relaxed energy curbs or targeted subsidies for semiconductor equipment) could spark a short‑term rebound.