Key facts
- China's factory activity is expected to return to growth in June, with the official PMI forecast at 50.1.
- This forecast suggests a marginal expansion, just above the 50-point threshold separating growth from contraction.
- Strong demand for high-tech exports, particularly chips and semiconductors, is helping to offset broader economic challenges.
- Exporters accelerated shipments in June due to U.S. trade policy uncertainty ahead of new tariffs.
- Domestic demand remains weak, with retail sales falling in May and the property crisis continuing to weigh on spending.
China's factory activity is anticipated to have returned to growth in June, albeit by a narrow margin, as the nation's economy seeks to regain momentum. A Reuters poll of 23 economists suggests the official purchasing managers' index (PMI) will rise to 50.1 from May's reading of 50.0, just crossing the threshold that indicates expansion.
This potential growth is largely attributed to robust demand for high-tech exports, particularly semiconductors, which are fueling the global AI boom. These strong exports have helped offset anticipated negative impacts from Middle East turmoil and U.S. trade policy uncertainty, which prompted exporters to accelerate shipments in June ahead of new tariffs. The Economist Intelligence Unit forecast the highest at 50.4, while Moody's Analytics predicted the lowest at 49.7.
However, signs indicate that stockpiling related to higher energy costs may be diminishing, and overseas buyers are beginning to reduce inventories. Domestic demand remains subdued, with retail sales in May declining for the first time in over three years and new home prices experiencing a sharper slump. Industrial profits data revealed strength in upstream and computer sectors, but downstream manufacturers continue to face pressure due to the ongoing property crisis.
In response to weak credit demand and sluggish domestic consumption, China's central bank has reportedly instructed some commercial banks to increase their lending this month. While strong exports, especially in chips, supported the economy in the first quarter, growth appears increasingly dependent on this sector. Shipments of automated data processing equipment surged over 60% year-on-year, contrasting with a more modest 1.9% rise in other goods like furniture. The private sector RatingDog factory activity survey is expected to show a slight decrease to 51.6 from 51.8.