Manufacturing activity in China experienced a notable uptick in June, surpassing expectations amid ongoing global technological investment, particularly in artificial intelligence (AI). According to the National Bureau of Statistics, the official purchasing managers’ index (PMI) rose to 50.3 from May’s reading of 50.0, indicating a return to expansion above the crucial 50-mark. Economists had predicted a more modest climb to 50.1.
This growth in manufacturing is particularly driven by a surge in high-tech products, reflecting increased demand linked to the global AI investment boom. Despite this progress, sectors such as real estate development and consumer goods production continue to feel the strain of ongoing challenges. The sub-indexes for production and new orders also saw improvements, hitting 51.4 and 51.2 respectively, while new export orders regained momentum at 50.1, signaling a potential recovery in international demand.
High-tech equipment manufacturing outperformed the broader manufacturing sector, with its PMI rising to an impressive 53.5, fueled by robust output in advanced manufacturing. Meanwhile, consumer goods production lagged with a PMI of 50.2. Analysts noted that external demand, particularly for AI-related technologies, played a significant role in propelling China’s economic performance, even as real estate services faced ongoing difficulties.
In parallel, the non-manufacturing PMI, which monitors construction and service industries, edged up slightly to 50.2. While this reflects a modest improvement, the construction sector still contracted, with its business activity index recording 49.0.
The month witnessed signs of recovery from two preceding months characterized by sluggish growth, as highlighted by data from the China Beige Book, which surveyed 1,321 businesses. Exports, in particular, shone, with U.S. importers increasing shipments in anticipation of changes following a recent diplomatic meeting between President Trump and Chinese leader Xi Jinping. This frontloading of goods came ahead of the expiration of a 10% tariff slated for July.
As policymakers assess the situation, separate reports indicated that industrial profits in upstream sectors, as well as in those linked to AI and renewable energy, achieved significant gains, while lower-tier manufacturers endured persistent pressures due to weakened domestic demand. May saw a decline in retail sales—marking the first such drop in over three years—alongside a steeper fall in new home prices, highlighting the impact of a prolonged property downturn.
Looking ahead, analysts are cautiously optimistic. The RatingDog manufacturing PMI, a private measure known for better capturing smaller, export-driven firms, is anticipated to drop to 51.6 from 51.8 in May when its results are published. This PMI often exceeds the official readings, reflecting the strength of China’s export market.
However, challenges remain. Helen Qiao, an economist at Bank of America Global Research, expressed concerns that hopes for a balanced economy are fading due to the stark contrast between rising exports and soft domestic demand. Although the bank adjusted its forecast for China’s export growth upward to 15%, it also warned that the existing imbalance may exert renewed downward pressure on inflation in the latter half of the year as the initial boost from rising energy costs dissipates.
Chinese authorities have so far refrained from implementing significant measures to stimulate demand, and the likelihood of immediate stimulus measures, such as cuts to policy rates, appears low. Goldman Sachs anticipates that increasing fiscal pressures may lead to gradual support through expedited government borrowing in the coming months, while remaining open to the possibility of easing should third-quarter GDP figures fall short of expectations.
