China's manufacturing sector showed stronger-than-expected growth in June, driven by robust demand for high-tech exports amid a global artificial intelligence (AI) boom [1]. The official purchasing managers' index (PMI) rose to 50.3 in June, surpassing economists' forecast of 50.1 and returning to expansionary territory above the 50-point threshold. This marks an improvement from May's reading of 50 [1]. The nonmanufacturing PMI, which tracks construction and services, also edged up to 50.2 from 50.1 in May, according to the National Bureau of Statistics [1].
The resilience of China's manufacturing sector this year has been attributed to surging investment in AI, which has helped offset export challenges stemming from turmoil in the Middle East, despite ongoing weakness in domestic demand [1]. According to China Beige Book, a private research firm surveying 1,321 Chinese businesses, both manufacturing activity and retail sales rebounded in June after two months of sluggish growth [1]. Exports remained a key bright spot, with U.S. importers accelerating shipments following a May meeting between President Donald Trump and Chinese leader Xi Jinping, which helped stabilize relations. This frontloading of exports also occurred ahead of the expiry of a 10% levy under Section 122 in July [1].
Separate data released Saturday indicated that industrial profits in upstream sectors, as well as AI and renewable-related industries, posted sharp gains. However, downstream manufacturers continued to face pressure due to weak domestic demand [1]. Retail sales in China fell in May for the first time in over three years, and new home prices declined at a faster pace, highlighting the ongoing drag from the property sector downturn [1]. The RatingDog manufacturing PMI, a private survey focusing on smaller and more export-oriented firms, is expected to fall slightly to 51.6 from 51.8 in May, though it typically runs higher than the official PMI due to the country's export strength [1].
Helen Qiao, China economist at Bank of America Global Research, noted that hopes for economic rebalancing are fading, with stronger exports and weaker domestic demand. The bank has upgraded its forecast for China's export growth this year to 15%, citing strong AI-related investment and global demand for renewable energy equipment and electric vehicles [1]. Qiao also warned that the imbalance between resilient supply and muted demand could renew downward pressure on inflation in the second half of the year, once the boost from higher energy costs fades [1]. Chinese policymakers have so far refrained from significant easing measures to boost demand, and economists largely rule out near-term stimulus [1].
CONCLUSION
China's manufacturing sector outperformed expectations in June, fueled by strong tech export demand and AI investment, while domestic demand remains weak. Export growth is expected to continue, but the imbalance with sluggish domestic consumption may pressure inflation and limit the scope for policy easing. The market response is cautiously optimistic, with medium impact anticipated.