Published on 6/30/2026
Factory activity in China returned to expansion during June, supported by strong exports of semiconductors and artificial intelligence equipment and an acceleration in export orders to America before new customs duties came into effect. However, the continued weakness of domestic demand and the slowdown in broad sectors of trade raise questions about whether this improvement represents the beginning of a sustainable recovery or a temporary boost, according to Reuters.
The official survey issued by the Chinese National Bureau of Statistics showed that the manufacturing purchasing managers index rose to 50.3 points in June, compared to 50.0 points in May, exceeding expectations of a Reuters poll, and the new export orders index also returned to the expansion zone, recording 50.1 points compared to 48.6 points in the previous month.
Director of China Affairs at the Eurasia Group, Dan Wang, said that the improvement came as a result of increased exports to meet global demand for electronic chips and products related to artificial intelligence, in addition to American companies accelerating their orders before the implementation of the new “Section 301” fees in late July, as well as improved domestic demand as a result of lower production costs and an increase in the number of infrastructure projects during the past month.
Reuters added that American retail companies placed their orders from China between four and six weeks ago to secure inventory for the Black Friday and Christmas season before the new customs duties take effect.
Technology-led growth
Despite the improvement in industrial indicators, trade data indicate that the recovery is largely concentrated in industries related to artificial intelligence, while traditional sectors continue to record poor performance.
Exports of automated data processing equipment jumped by 60% on an annual basis during May, while the increase in furniture exports did not exceed 1.9%, which reflects the widening gap between technology industries and the rest of the industrial sectors.
Julian Evans-Pritchard, head of China’s economics department at Capital Economics, said that the improvement “remains largely dependent on exports and the technology sector related to artificial intelligence,” warning that the industrial sector “appears to be gradually returning to deflationary pressures.”
These concerns are reinforced by price data, as the factory gate price index fell to 48.2 points in June, compared to 51.9 points in May, after 5 months of expansion, while the employment index continued its downward trend.
The chief economist at the Economist Intelligence Unit, Xu Tianchen, said that the strength of exports is likely to continue thanks to the global demand for artificial intelligence applications, but in return he expected more economic easing measures, whether by accelerating fiscal spending or providing additional space to ease monetary policy.
Domestic demand remains the weakest link
On the other hand, the real estate market and consumer spending still represent the most prominent weaknesses in the second largest economy in the world, as the latest data showed a decline in retail sales in May for the first time in more than three years, coinciding with the continued decline in new home prices at an accelerated pace.
The PMI for the non-manufacturing sector, which includes services and construction, also rose slightly to 50.2 points from 50.1 points, while the composite index recorded 50.6 points compared to 50.5 points in the previous month, indicating a limited improvement in overall economic activity.
Reuters believes that the Chinese economy, worth about $20 trillion, still relies heavily on external demand to absorb its industrial production, in light of the continuing real estate crisis and weak domestic consumption.
The importance of June’s data increases as it is a test of the Chinese economy’s ability to maintain its momentum after the impact of the acceleration in US orders recedes, as analysts expect that GDP growth will slow during the second quarter to about 4.6% on an annual basis, compared to previously recorded levels, with risks remaining inclined towards a further slowdown if domestic demand does not improve significantly.
