China's PMI improved mildly in June, but the economy still shows sector divergence

Overview

The report focuses on China's June NBS PMI components and recent high-frequency data. The core conclusion is that manufacturing activity showed mild improvement, but the recovery is uneven: high-tech, equipment manufacturing, and export-related sectors remain resilient, while traditional industry, domestic demand, real estate, and the construction chain are still under pressure.

Core views

First, the manufacturing PMI rebounded from 50.0 to 50.3 in June, slightly above the 50 boom-bust line, indicating marginal improvement in activity. Second, the improvement mainly came from rebounds in production, new orders, and new export orders, as well as strong performance in high-tech manufacturing and equipment manufacturing. Third, domestic demand remains weak, with slower sales growth during the mid-year e-commerce shopping festival, auto sales still posting double-digit declines, and property sales, home prices, investment, and new starts continuing to drag on growth. Fourth, the gap between input prices and output prices PMI narrowed, indicating some easing in cost pressures, but it has not yet returned to the level seen before the Middle East conflict.

Analysis framework

The report uses a method combining PMI component breakdown and cross-validation with high-frequency indicators, examining manufacturing, non-manufacturing, services, construction, prices, orders, exports, and the real estate chain to judge whether China's economy is experiencing broad-based recovery or structural divergence.

Methodology notes

• Macro activity trackingPMI boom-bust line analysis

  A PMI above 50 indicates expansion, while below 50 indicates contraction.

  The report uses manufacturing PMI, production PMI, new orders PMI, new export orders PMI, non-manufacturing PMI, services PMI, and construction PMI to assess the activity conditions of different sectors.

• Structural divergence analysisSector PMI comparison

  Compare PMI performance across high-tech, equipment manufacturing, consumer goods, energy-intensive industries, and traditional industries.

  This framework shows that high-tech and equipment manufacturing are clearly stronger than traditional industries, indicating significant structural divergence behind the aggregate improvement.

• High-frequency data validationHigh-frequency indicators for domestic demand, exports, and real estate

  Use e-commerce sales, auto sales, port cargo throughput, property transactions, and the issuance pace of local government special bonds to validate PMI signals.

  The high-frequency data support the 'two-speed economy' view: external demand and the high-tech chain are relatively strong, while domestic demand, real estate, and construction demand remain weak.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China macroeconomy

  Research subject

  Strengths

  Manufacturing PMI returned to expansion territory, while production, new orders, and export orders all improved at the margin.

  Weaknesses

  The overall PMI is only slightly above 50, while domestic demand, real estate, and traditional industries remain weak.

  Comparison

  High-tech and export-related chains are stronger than traditional industries and the real estate chain.

  Risks

  If domestic demand and real estate continue to weaken, the manufacturing improvement may struggle to broaden into a full recovery.

• High-tech manufacturing and equipment manufacturing

  Relatively benefiting sectors

  Strengths

  The high-tech manufacturing PMI is 53.5 and the equipment manufacturing PMI is 52.5, both clearly stronger than overall manufacturing.

  Weaknesses

  They may still be affected by fluctuations in external demand, the global tech cycle, and the policy environment.

  Comparison

  Significantly outperforming consumer goods manufacturing, energy-intensive industries, and traditional industries.

  Risks

  If export orders weaken, activity in related sectors may soften.

• Export-related sectors

  Source of resilience

  Strengths

  The new export orders PMI returned to 50.1, and port cargo throughput YoY growth rose to 5.2%.

  Weaknesses

  The resilience of external demand still needs confirmation from continued data.

  Comparison

  Performance is stronger than domestic consumption and real estate-related demand.

  Risks

  Changes in global demand, trade policy, or geopolitical conflict could weaken export support.

• Real estate and construction chain

  Main drag

  Strengths

  Construction PMI and the construction new orders index have improved from their lows.

  Weaknesses

  Construction PMI remains below 50, the new orders index is still weak, and new home sales, existing home transactions, home prices, real estate investment, and new starts continue to face pressure.

  Comparison

  Clearly weaker than high-tech manufacturing, equipment manufacturing, and some service industries.

  Risks

  If the real estate drag persists, it will continue to suppress construction activity, steel processing, and domestic demand.

• Manufacturing profit margins

  Object of price pressure observation

  Strengths

  The gap between input prices and output prices PMI narrowed to 6.0 percentage points from 8.6 percentage points in April-May.

  Weaknesses

  The gap is still above the pre-conflict average of around 5 percentage points, and the output prices PMI fell back to 48.2.

  Comparison

  Cost pressure has eased versus the prior period, but has not yet returned to the pre-conflict state.

  Risks

  If insufficient demand keeps output prices in contraction, profit margin improvement may be limited.

Key data

• June NBS manufacturing PMI50.3Rebounded from 50.0 in May, above both Barclays' and market consensus expectations of 50.1.
• Production PMI51.4Up 0.2 percentage points from May.
• New orders PMI51.2Returned to expansion territory from 49.9 in May.
• New export orders PMI50.1Rebounded from 48.6 in May to near the expansion line, showing resilience in export demand.
• High-tech manufacturing PMI53.5Up from 52.9 in May, a more than two-year high, and in expansion for 17 consecutive months.
• Equipment manufacturing PMI52.5Rose to a three-year high.
• Consumer goods manufacturing PMI50.2Returned to expansion territory from 49.7 in May, but still below the overall manufacturing PMI.
• Energy-intensive industries PMI47.1Still in contraction territory.
• Input prices PMI54.2Retreated from previous highs, indicating easing input cost pressure.
• Output prices PMI48.2Fell from 51.9 back into contraction territory.
• Gap between input and output prices PMI6.0 percentage pointsLower than the 8.6 percentage points seen from April to May, but still above the average of around 5 percentage points from January to February.
• June port cargo throughput YoY growth5.2%Higher than 4.6% in May, indicating external demand remains resilient.
• Non-manufacturing PMI50.2Improved slightly from 50.1 in May.
• Services PMI50.4Rose slightly from 50.3 in May, with growth concentrated in technology- and finance-related industries.
• Construction PMI49.0Improved for the second consecutive month, but still below 50.
• Construction new orders index46.3Improved from 43.5, but still indicates weak demand.
• June monthly issuance of local government special bonds13% of the annual quotaHigher than the monthly average of 4% in April-May and 9% in the first quarter, but cumulative issuance year to date is still 2.1% lower than in the first half of 2025.

Impact & implications

The PMI improvement suggests marginal recovery in China's short-term growth momentum, but it is insufficient to prove a comprehensive stabilization in demand. For asset and sector views, segments benefiting from high-tech manufacturing, equipment manufacturing, and export resilience are relatively better positioned; real estate, construction, steel processing, petrochemical-related chains, and some consumer demand remain under pressure. The narrowing price gap helps ease pressure on manufacturing profit margins, but the return of output prices to contraction territory also suggests that demand and pricing power remain weak.

Risks

• The real estate market continues to decline, dragging down construction activity, steel processing, and overall domestic demand.
• Recovery in domestic consumer demand remains insufficient, and weak e-commerce and auto sales may persist.
• External demand or export orders may weaken, reducing the resilience of high-tech and export-oriented sectors.
• Volatility in energy and raw material prices may once again widen the gap between input costs and output prices.
• The PMI is only slightly above 50; if subsequent data weaken, the current improvement may prove to be only a short-term fluctuation.

What to watch

• Whether the subsequent NBS manufacturing PMI can remain above 50, and whether new orders and new export orders continue to expand.
• Whether high-tech manufacturing and equipment manufacturing PMI can stay in a high-activity range.
• Whether consumer goods manufacturing can further catch up with the overall PMI, validating whether domestic demand is stabilizing.
• Whether property sales, existing home transactions, home prices, real estate investment, and new starts continue to contract.
• Whether faster issuance of local government special bonds can translate into physical construction workload and improved new orders.
• Whether the gap between input prices PMI and output prices PMI continues to narrow, to judge whether pressure on manufacturing profit margins is easing.