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1. Manufacturing activity unchanged
Analysts said China’s factory activity was largely unchanged in June despite the official manufacturing purchasing managers’ index (PMI) remaining in contraction for a second consecutive month.
The gauge – a survey of sentiment among factory owners – stood at 49.5 in June, unchanged from May.
Within the official manufacturing data, the new export order subindex also remained unchanged at 48.3 in June.
Readings of the subindexes gauging new orders, raw material inventory and employment also remained below 50, while the reading for suppliers’ delivery times fell to 49.5 from 50.1 in May.
Only the production subindex remained above the watershed level of 50, but still dropped to 50.6 from 50.8 – indicating slowing manufacturing expansion.
In contrast, the Caixin/S&P Global manufacturing PMI rose to 51.8 in June from 51.7 in the previous month, marking the fastest clip since May 2021 and surpassing analysts’ forecasts.
The index, which mostly covers smaller, export-oriented firms, has remained above the 50-point mark that separates growth from contraction for eight straight months.
Manufacturing output growth hit a two-year high in June, while the orders index – a gauge of demand that includes the overseas orders index – remained in expansionary territory last month, but at a slower rate.
Demand for consumer and intermediate goods was stronger than that for investment goods, said the survey.
2. Services activity checked, but remains in expansion
Activity in China’s services sector eased last month, although both gauges remained in expansion.
China’s official non-manufacturing PMI – a measure of sentiment in the service and construction sectors – fell to 50.5 in June from 51.1 in May, remaining in expansion territory for the sixth straight month.
Within the non-manufacturing PMI, the business activity index for the construction sector dropped to 52.3 from 54.4 in May.
The official services PMI subindex also declined from 50.5 to a five-month low of 50.2.
“Although government bond issuance started to reaccelerate in May, it appears that this has yet to feed through to stronger infrastructure spending,” said analysts at Capital Economics.
The Caixin/S&P Global services PMI aligned with a broader official PMI as it eased to 51.2 from 54 in May, marking the lowest reading since October 2023 but remaining in expansionary territory for the 18th straight month.
Within the survey, which covers mostly private and export-oriented companies, the new orders subindex fell to 52.1 in June from 55.4 the previous month. Overseas demand also eased slightly, even with strong exports in May.
“Although the index remained in expansionary territory for the 18th consecutive month, the growth momentum weakened compared to May,” said Wang Zhe, senior economist at Caixin Insight Group.
Supply and demand continued to expand at a slower pace, he added, with new export orders growing for the 10th straight month.
But employment in the services sector worsened again, according to Wang, while prices were under pressure and market optimism weakened.
3. Composite gauges fall
China’s official composite PMI, which tracks both the services and manufacturing sectors, declined from 51 in May to 50.5 in June.
Analysts at Capital Economics said the official composite PMI was the lowest reading this year.
Meanwhile, the Caixin/S&P’s composite PMI fell to 52.8 from 54.1, but remained in expansionary territory since November.
“Supply and demand expanded, with the manufacturing sector outperforming services. Employment at the composite level contracted, while price levels remained stable,” added Wang at Caixin Insight Group.
“The price levels in the services sector were weaker than those in manufacturing. Notably, the gauge for future output expectations recorded a five-year low in June, indicating weak optimism among both manufacturers and service businesses.”
4. ‘Policy support requires further consolidation’
Analysts at Capital Economics said the PMIs for June suggested that the recovery lost some momentum last month.
“The manufacturing surveys may have been weighed down by negative sentiment effects due to recent tariff announcements from the US and EU, however,” they said.
“In practice, we doubt the near-term strength in exports will be derailed by tariffs. Together with increased fiscal spending supporting domestic demand, this will keep growth relatively strong over the coming months.”
The data came at a key time for China’s economy, with the third plenum set to take place in mid-July.
“Recent macroeconomic data show that the economy continues to recover, with stable production, demand, employment and prices, as well as strong exports,” said Wang at Caixin Insight Group.
“Looking ahead, policy support requires further consolidation. Efforts in optimising real estate regulations, upgrading equipment on a large scale, replacing old consumer goods, and the ‘three major projects’ – those involving affordable housing, urban village renovation, and dual-use public facilities that can be used for everyday and emergency purposes – need to be strengthened.
“In addition, fiscal and tax reforms should focus on creating more optimistic expectations among market participants.”
