China's factory activity expands in June on high-tech exports

China's factory activity returned to expansion in June, an official survey showed on Tuesday, driven by strong high-tech manufacturing exports linked to the AI boom, even as shipments of other goods remained weak alongside subdued domestic demand.

The official manufacturing purchasing managers' index (PMI) rose to 50.3 in June from 50.0 in May, beating the forecast in a Reuters poll of economists and above the 50-mark separating growth from contraction, according to a survey by the National Bureau of Statistics (NBS).

The non-manufacturing PMI, which includes services and construction, improved to 50.2 versus 50.1 in May, while the composite PMI came in at 50.6 compared with 50.5 a month earlier.

Weakness in the property market, employment and consumer spending continues to dampen growth, leaving China reliant on global demand to absorb goods produced by its industrial sector.

There is enormous international demand for semiconductors powering data centres and advanced electronics, playing to China's manufacturing strengths.

But there does not seem to be much demand for anything else. Exports of furniture, for example, grew just 1.9 percent in value terms year-on-year, according to the latest trade data for May, while shipments of automated data processing equipment jumped 60 percent over the same period.

Conditions are no better on the home front, with retail sales for May falling for the first time in over three years, according to the most recent data, and new home prices declining at a faster pace.

In the latest sign that the US$20 trillion (HK$156 trillion) economy is not firing on all cylinders, China's central bank instructed some commercial banks to increase their lending this month, people familiar with the matter said on Friday.

Xu Tianchen, senior economist at the Economist Intelligence Unit, which returned the highest forecast in a Reuters poll of 50.4, said there had been signs of renewed trade front-loading in June, as exporters accelerated shipments bound for the US ahead of new Section 301 tariffs taking effect from late July.

With signs that front-loading triggered by Middle East-driven price increases is fading, input costs rising and overseas buyers running down inventories as they wait for a ceasefire, Chinese manufacturers need the world's top consumer market to re-open for business.

A closely watched meeting in May between US President Donald Trump and Chinese leader Xi Jinping, however, produced no meaningful breakthroughs, whether on tariffs or Beijing using its influence over Tehran to end the Iran war.

Reuters

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