Liang Ping Gao and Ryan Wu
BEIJING (Reuters) – Factory activity at China’s small manufacturers grew at the fastest pace since 2021, helped by overseas orders, a private index showed, while a broader survey showed the industrial sector contracted again on weak domestic demand and trade tensions.
The Caixin/S&P Global Manufacturing PMI rose to 51.8 in June from 51.7 the previous month, marking the fastest increase since May 2021 and beating analysts’ expectations of 51.2.
The index, which mainly targets small, export-oriented companies, has remained above the 50-point mark that separates growth from contraction for eight consecutive months.
That contrasts with the broader official PMI released on Sunday, which showed overall manufacturing activity fell in June, weakening for a second straight month, while service sector activity fell to its lowest level in five months.
Manufacturing output growth hit a two-year high in June, according to the Caixin PMI survey, while the orders index, which includes the overseas orders index, continued to expand last month, albeit at a slower pace.
Demand for consumer and intermediate goods was stronger than that for investment goods, according to the survey.
China’s exports beat expectations in May, but analysts said it was still unclear whether the gains were sustainable given recent trade tensions.
“June PMIs were mixed, but overall they suggest the (economic) recovery lost momentum last month,” Huang Zijun, China economist at Capital Economics, wrote in a research note.
Huang added that negative sentiment following recent tariff announcements by the United States and the European Union may have also influenced the investigation.
The EU is set to impose temporary import tariffs on Chinese-made electric vehicles on July 4.
The world’s second-largest economy is struggling to find stable footing as China’s huge real estate sector, which failed to respond to a rescue package announced in May, continues to weigh on the economic outlook.
China’s new home prices rose to their lowest level in five months in June, a private survey showed on Monday.
According to a survey by Caixin, business owners are facing rising costs due to rising prices of raw materials such as steel, copper and aluminum, as well as rising transportation costs, which resulted in the input sub-index posting its fastest increase in two years.
“Lack of market confidence and effective demand remains a major challenge,” said Wang Zhe, senior economist at Caixin Insight Group.
Concerns about increased competition and an uncertain economic outlook pushed manufacturing confidence over the next 12 months to its lowest level since November 2019.
The industry was still shedding jobs in June.
“We still see the 5% GDP target as achievable this year, but it will take time and further policy effort to heal the wounds and rebuild confidence,” Citi economists wrote in a research note.
For the rest of the year, Citi expects only incremental measures, such as further real estate support measures, two further 10 basis point cuts in policy interest rates, one 50 basis point cut in bank reserve ratio requirements, and accelerated fiscal deployment without any budget amendments or expansion of bond issuance capacity.
(Reporting by Liangping Gao and Ryan Wu; Editing by Sam Holmes and Miral Fahmy)
