Lianyungang, China – June 28: Employees work on a carbon fiber production line at the Lianyungang base of CNBM subsidiary Zhongfu Shenying Carbon Fiber Co., Ltd. in Lianyungang, Jiangsu Province, China, on June 28, 2026.
Wang Jianmin | Visual China Group | Getty Images
China’s manufacturing activity expanded more rapidly than expected in June, with high-tech production increasing on demand from a global artificial intelligence investment boom, while real estate development and consumer goods production remained under pressure.
The official Purchasing Managers Index rose to 50.3 in June from 50.0 in May, beating economists’ expectations of 50.1 and returning to expansion territory above the benchmark 50.
China’s manufacturing industry remains strong this year, as a surge in demand for AI technology offsets the impact of the Middle East turmoil, even as domestic demand remains weak.
According to the National Bureau of Statistics, both supply and demand improved in June, as the production and new orders sub-indices rose to 51.4 and 51.2, respectively. New export orders rebounded to 50.1 in June, indicating a recovery in overseas demand as concerns about severe energy and growth shocks faded with easing tensions in the Middle East.
High-tech equipment manufacturing outperformed the broader factory sector, with June’s PMI rising to 53.5 on strong advanced manufacturing output, but consumer goods production lagged at 50.2.
Julian Evans-Pritchard, head of China economics at Capital Economics, said external demand and demand for AI-related technology were the main drivers of China’s growth momentum in June, but “real estate services are still struggling.”
The non-manufacturing index, which tracks construction and service activity, rose to 50.2 from 50.1 in May, according to statistics agency data. The business activity index for the construction industry continued to contract in June, rising 0.2 points from the previous month to 49.0.
China Beige Book, a private research firm that tracks 1,321 Chinese companies, said the world’s second-largest economy showed signs of recovery in June after two months of slowing growth, with manufacturing activity and retail sales picking up.
After President Donald Trump’s meeting with Chinese President Xi Jinping in May stabilized relations, exports remained positive as U.S. importers rushed to bring forward shipments. The advance was also made before the 10% levy under Article 122 expired in July.
The U.S. has not yet imposed additional tariffs that could emerge from the U.S. government’s Section 301 investigations of countries with confirmed overcapacity and forced labor practices.
Separate data released on Saturday showed industrial profits in upstream sectors, AI and renewable energy sectors recorded strong increases, while downstream manufacturing remained under pressure from weak domestic demand.
China’s retail sales fell in May for the first time in more than three years, accelerating the pace of decline in new home prices and highlighting the effects of a prolonged real estate slump.
The Rating Dog Manufacturing PMI, a private survey of small, export-oriented companies, is expected to fall to 51.6 from 51.8 in May, when results are released on Wednesday. The index has historically outperformed the official PMI measure, partly reflecting the country’s strength in exports.
“Hopes for rebalancing have been dashed,” said Helen Chao, China economist at Bank of America Global Research, citing rising exports and weak domestic demand. The bank raised its forecast for China’s export growth this year to 15%, citing strong AI-related investment and global demand for renewable energy equipment and electric vehicles.
Qiao added that once the boost from rising energy costs weakens, the imbalance between resilient supply and sluggish demand is likely to put downward pressure on inflation again in the second half of this year.
Chinese policymakers are refraining from major easing this year to boost demand, and economists have largely ruled out short-term stimulus such as lowering interest rates. Goldman Sachs expects rising fiscal pressures to prompt more support through accelerated government borrowing in coming months, while leaving the door open for further easing if third-quarter GDP disappoints.
