BEIJING — China’s manufacturing sector returned to expansion in June as surging global demand for semiconductors, computers and other artificial intelligence-related products offset persistent weakness in the broader economy, according to official data released Monday.
The official manufacturing purchasing managers’ index rose to 50.3 in June from 50.0 in May, surpassing economists’ expectations of 50.0 in a Reuters poll. A reading above 50 indicates expansion in factory activity.
The latest figures suggest China’s export-oriented manufacturers continue to benefit from strong international investment in AI infrastructure, providing an important source of growth even as the country’s property downturn and sluggish domestic consumption continue to weigh on the world’s second-largest economy.
Dan Wang, China director at Eurasia Group, said rising exports of semiconductors and other AI-related products, together with accelerated shipments to the United States ahead of additional tariffs expected later this year, were the main drivers behind the improvement.
“Exports to meet international demand for chips and other AI-related products, as well as front-loading to get ahead of new U.S. Section 301 tariffs due late July and improved domestic demand due to lower upstream costs underpinned the improvement,” Wang said. She also noted a modest increase in domestic infrastructure projects during the month.
Shipping executives have said U.S. retailers are bringing forward purchases from China by as much as six weeks to ensure inventories are stocked before the expected tariff increases, particularly ahead of the Black Friday and Christmas shopping seasons.
Official sub-indexes reflected the stronger external demand. New export orders returned to expansion at 50.1 after registering 48.6 in May, while production edged up to 51.4 from 51.2. Overall new orders also improved, rising to 51.2 after falling below the expansion threshold a month earlier.
Not all indicators pointed to stronger momentum. Factory-gate prices slipped back into contraction at 48.2 after five consecutive months of expansion, while employment in the manufacturing sector continued to decline, highlighting ongoing pressure on producers despite improved output.
Xu Tianchen, senior economist at the Economist Intelligence Unit, expects export demand linked to artificial intelligence investment to remain a key source of support in the coming months while additional government stimulus may also help sustain growth.
“The export strength is set to continue, driven by global AI investment demand,” Xu said. “Second, more policy easing will come.”
He added that fiscal spending has lagged government budget plans and is likely to accelerate, while monetary authorities still have room to introduce further easing measures.
Outside manufacturing, China’s non-manufacturing PMI, which includes services and construction, rose slightly to 50.2 from 50.1 in May. The composite PMI, combining manufacturing and services, also improved modestly to 50.6.
Despite the encouraging headline figures, economists cautioned that China’s recovery remains highly uneven.
Demand for products supporting artificial intelligence has continued to surge globally, reinforcing China’s position as a leading manufacturing hub for advanced electronics. By contrast, exports across more traditional sectors remain comparatively weak. Official trade data for May showed furniture exports increased only 1.9% from a year earlier, while exports of automated data-processing equipment surged 60%.
At home, consumer demand continues to struggle. Retail sales declined in May for the first time in more than three years, while new home prices extended their downturn, underscoring the continuing impact of the country’s prolonged property crisis.
Julian Evans-Pritchard, head of China economics at Capital Economics, said manufacturing activity remains overly reliant on exports and technology-related production while broader price pressures remain subdued.
“The improvement remains heavily dependent on exports and AI-related tech,” Evans-Pritchard said, warning that the manufacturing sector appears to be slipping back toward deflation.
China has set an economic growth target of between 4.5% and 5% for 2026, slightly below last year’s 5% expansion. However, economists believe sustaining that objective may become increasingly challenging if domestic demand fails to recover and export momentum weakens later this year.
Lynn Song, chief economist for China at ING, said recent economic indicators point to slower growth in the second quarter despite the improvement in factory activity.
“We’re looking for a slowdown to 4.6% year-on-year, with risks slightly balanced to the downside,” Song said.
