BEIJING — China’s manufacturing sector is showing signs of a fragile rebound. A Reuters poll of 23 economists released days before the official data pointed to the purchasing managers’ index ticking up to 50.1 in June from exactly 50.0 in May. Barely above the line that marks expansion. The reading, due Tuesday, would signal the slimmest return to growth. Yet the details tell a more complicated story.
Strong shipments of chips and semiconductors have propped up the world’s second-largest economy. Global demand for AI hardware surged. Exports of automated data processing equipment jumped more than 60% year-on-year in recent trade figures. Furniture and other traditional goods managed just 1.9%. The divergence is stark. High-tech pockets shine. The broader factory floor struggles.
May’s official PMI had stalled at 50.0 after 50.3 in April. New export orders contracted sharply to 48.6. Input costs stayed elevated even as they eased somewhat from prior peaks. Reuters reported that overseas demand for consumer goods weakened noticeably. Wen Tao, an analyst at the China Logistics Information Center, noted the slowdown in foreign orders was prominent. Raw material prices continued rising despite the conflict-driven energy spike from the Middle East.
But a private gauge told a different tale. The RatingDog China General Manufacturing PMI, compiled by S&P Global, came in at 51.8 for May. It beat forecasts of 51.6 though it slowed from April’s 52.2. “While the rate of growth eased, it remained among the highest observed over the past five years,” said Yao Yu, founder of credit research firm RatingDog, in CNBC coverage. New export business saw only a slight decline. Employment contracted marginally. Input price pressures moderated for the first time in months.
The contrast between the two surveys isn’t new. The official data, released by the National Bureau of Statistics, covers a wider set of enterprises including many smaller, domestically focused firms. RatingDog samples more export-oriented manufacturers. Together they paint a picture of an economy pulled in different directions. Large enterprises posted a PMI of 51.1 in May, above the threshold. Medium and small ones lagged at 48.6 and 48.5.
Industrial profits offered further nuance. Data released in late June showed upstream sectors and computer-related firms recording sharp gains. Downstream manufacturers faced continued pressure. A protracted property crisis weighs on spending across the $20 trillion economy. Retail sales fell in May for the first time in over three years. New home prices slid faster. Domestic demand remains the weak link.
Exporters appear to have front-loaded shipments in June. U.S. trade policy uncertainty loomed. New Section 301 tariffs were set to take effect later in July. “We spotted trade frontloading in June,” said Xu Tianchen, senior economist at the Economist Intelligence Unit, in the original Yahoo Finance/Reuters poll article. “Exporters accelerated shipments due to U.S. trade policy uncertainty. Late July will be a big moment for them because new U.S. Section 301 tariffs will kick in by then.”
Signs of fading stockpiling have emerged. Overseas buyers run down inventories as prices rise. The global AI boom has helped offset some pain from geopolitical tensions. Yet reliance on a narrow band of high-tech exports raises questions about sustainability. Recent trade data underscores the point. Semiconductor-related shipments soar. Broader consumer goods barely move.
Beijing has responded with modest steps. The central bank instructed some commercial banks to increase lending this month. People familiar with the matter described it as a response to weak credit demand. Sluggish domestic consumption persists. The property sector’s woes show little sign of quick resolution. Analysts say policymakers have set less ambitious growth targets for the year. Focus has shifted toward fixing supply-demand mismatches.
Services have provided some offset. The non-manufacturing PMI edged above 50 in May. Tourism picked up during the extended May Day holiday. Goldman Sachs analysts highlighted the mixed picture. They noted subdued manufacturing growth alongside increased services activity and continued construction decline. The composite output index rose modestly.
Investors and policymakers alike watch the June figures closely. A reading of 50.1 would mark a return to expansion. Barely. Moody’s Analytics forecast the lowest at 49.7. The Economist Intelligence Unit saw 50.4. The RatingDog private survey for June is due Wednesday and expected around 51.6. Any sustained momentum will depend on whether domestic conditions improve.
Recent weeks brought fresh context. Industrial profits rose 18.8% year-to-date through May. China’s first-quarter current account surplus hit a record. Yet questions linger over how much reflected tariff front-loading. The June PMI offers the first cleaner read after earlier disruptions. X posts from macro analysts on Monday highlighted the data’s importance for commodity currencies and global sentiment. One noted the coming U.S. tariffs as a pivotal test.
The property crisis continues to cast a long shadow. It dampens consumer spending and employment. Weakness there feeds back into factory demand. High-tech manufacturing, by contrast, benefits from global AI investment. The split leaves policymakers with a delicate balancing act. Stimulus measures have been targeted rather than broad. Lending directives aim to ease credit conditions without flooding the system.
Economists warn that without stronger domestic demand, growth will stay uneven. Exports can only carry so much weight. Input costs tied to energy and raw materials add another layer of pressure. Even as some price indices ease, manufacturers report elevated expenses. Supply chains remain strained from earlier geopolitical shocks.
So the factory sector limps forward. One month at a time. A 50.1 PMI wouldn’t spark celebration. It would simply confirm that contraction has been avoided for now. The real test lies in whether this meager expansion can broaden beyond semiconductors and AI components. Until domestic consumption revives and the property market stabilizes, China’s industrial engine will keep running on a narrow set of cylinders.
Market reactions have been muted in recent sessions. Focus has shifted toward upcoming U.S. jobs data and inflation readings. Yet China’s figures remain a key input for global commodity prices and Asian equities. A surprise to the upside could support sentiment. Anything below 50 would renew concerns about the recovery’s durability.
Beijing has vowed to address the imbalances. Concrete measures on property support or consumption subsidies could help. For now the data flows paint a picture of resilience in select areas and persistent softness elsewhere. The coming release will add one more data point. But the larger narrative is already clear. China’s factories are holding steady. They aren’t yet firing on all cylinders.
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