China factory activity grows faster than expected in June on tech export demand

China’s manufacturing activity expanded faster than expected in June; While on-demand high-tech manufacturing growth has been driven by the global AI investment boom, real estate development and consumer goods production have remained subdued.

The official purchasing managers’ index rose to 50.3 in June from 50.0 in May, exceeding economists’ forecast of 50.1 and returning to the expansion zone above the 50-point threshold.

China’s manufacturing engine has remained resilient this year, with domestic demand remaining weak but rising demand for AI technology offsetting negative impacts from turmoil in the Middle East.

According to the National Bureau of Statistics, both supply and demand increased in June, with sub-indices for production and new orders rising to 51.4 and 51.2 respectively. New export orders recovered in June to 50.1; This signaled a recovery in overseas demand as the easing of tensions in the Middle East eased fears of a serious energy and growth shock.

High-tech equipment manufacturing outpaced the broader factory sector, with the PMI rising to 53.5 in June thanks to stronger advanced manufacturing output, while consumer goods production remained at 50.2.

Foreign demand and AI-related technology demand were the main engines of China’s growth momentum in June, but “real estate services are still struggling,” said Julian Evans-Pritchard, head of China economics at Capital Economics.

The non-manufacturing indicator, which tracks construction and service activities, increased from 50.1 to 50.2 in May. data by the statistical agency. The construction business activity index continued to shrink in June and rose to 49.0, an increase of 0.2 points compared to the previous month.

The world’s second-largest economy showed signs of recovery as manufacturing activity and retail sales picked up in June after two months of slow growth, according to China Beige Book, a private research firm that surveyed 1,321 Chinese businesses.

Exports remained a bright spot as U.S. importers flocked to bring forward shipments after President Donald Trump’s May meeting with Chinese leader Xi Jinping put relations on a stable footing. Front-loading also occurred before the 10% tax under Section 122 expired in July.

The United States has not yet implemented additional duties that could arise from Washington’s Section 301 investigations targeting countries identified for overcapacity and forced labor practices.

Separate data released on Saturday In addition to manufacturing sectors, industrial profits in artificial intelligence and renewable energy-related industries also recorded sharp increases, while downstream manufacturers remained under pressure due to weak domestic demand.

China’s retail sales fell in May for the first time in more than three years, and New home prices fell fasterunderlines the drift resulting from a protracted property crisis.

The RatingDog manufacturing PMI, a private survey of smaller, more export-oriented firms, is expected to fall to 51.6 from 51.8 in May, when results were announced Wednesday. The indicator has historically been above the official PMI reading and partly reflects the country’s export strength.

Bank of America Global Research China economist Helen Qiao said, “Hopes for rebalancing have been dashed,” citing strong exports and weak domestic demand. The bank raised its forecast for China’s export growth this year to 15%, citing strong AI-related investments and global demand for renewable energy equipment and electric vehicles.

Qiao added that the imbalance between resilient supply and muted demand will again increase downward pressure on inflation in the second half of this year, as the increase resulting from higher energy costs subsides.

While Chinese policymakers have avoided any meaningful expansion to boost demand this year, economists have largely ruled out short-term stimulus such as lowering policy interest rates. Goldman Sachs expects rising fiscal pressures to spur increased support through faster government borrowing in coming months, leaving the door open to further easing if GDP disappoints in the third quarter.