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

LIANYUNGANG, CHINA - JUNE 28: An employee works on the carbon fiber production line at the Lianyungang base of CNBM subsidiary Zhongfu Shenying Carbon Fiber Co., Ltd. on June 28, 2026 in Lianyungang, Jiangsu Province of China. Wang Jianmin | Visual China Group | Getty ImagesChina's manufacturing activity picked up faster than expected in June buoyed by strong demand for high-tech exports amid global AI boom. The official purchasing managers' index edged up to 50.3 in June, beating economists' forecast of 50.1, returning to the expansionary territory above the 50-point threshold. The index stood at 50 in May. The nonmanufacturing gauge, which tracks construction and services activity, rose to 50.2 from 50.1 in May, according to data released Tuesday by the National Bureau of Statistics.China's manufacturing engine has remained resilient this year, with surging investment in artificial intelligence offsetting the export drag from turmoil in the Middle East, even as domestic demand remains weak. The world's second-largest economy showed signs of recovery in June after two months of sluggish growth, with manufacturing activity and retail sales rebounding, according to China Beige Book, a private research firm that surveys 1,321 Chinese businesses. Exports remained a bright spot with U.S. importers rushing to bring forward shipments after President Donald Trump's meeting with Chinese leader Xi Jinping in May set relations on a steady footing. The frontloading also came ahead of the expiry of a 10% levy under Section 122 in July.The U.S. has yet to impose additional duties that could emerge from Washington's Section 301 probes targeting countries identified for overcapacity and forced labor practices.K-shape deepensSeparate data released Saturday showed industrial profits in upstream sectors, as well as AI and renewable-related industries, posting sharp gains, while downstream manufacturers remained under pressure amid weak domestic demand. China's retail sales fell in May for the first time in more than three years, and new home prices declined at a faster pace, underscoring the drag from a prolonged property downturn.The RatingDog manufacturing PMI, a private survey that tends to capture smaller and more export-oriented firms, is expected to fall to 51.6 from 51.8 in May, when results are released Wednesday. The gauge has historically run above the official PMI reading, in part reflecting the country's export strength. "The hope of rebalancing is dashing," said Helen Qiao, China economist at Bank of America Global Research, citing stronger exports and weaker domestic demand. The bank upgraded its forecast for China's export growth this year to 15%, citing strong AI-related investment, global demand for renewable energy equipment and electric vehicles. The imbalance between resilient supply and muted demand is likely to renew downward pressure on inflation in the second half of this year, once the boost from higher energy costs fades, Qiao added. Chinese policymakers have refrained from meaningful easing to boost demand this year, with economists largely ruling out near-term stimulus, such as policy rate cuts. Goldman Sachs expects rising fiscal pressures to spur incremental support through faster government borrowing in the coming months, while leaving the door open to further easing should third-quarter GDP disappoint.

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