Official PMI Rebounded Slightly in June, but Drags from Domestic Demand and Real Estate Remain

Overview

This report interprets China's official PMI data for June. Manufacturing PMI rose to 50.3 and non-manufacturing PMI rose to 50.2, both above market and Nomura expectations. On the surface, the data point to marginal improvement in economic momentum, especially with new export orders returning to expansion territory; however, Nomura believes the improvement may partly reflect inadequate quarter-end seasonal adjustment, while domestic demand, real estate, investment, and employment still show persistent pressure.

Core views

The core judgment is that the June PMI rebound should not be interpreted as a broad-based rebound in economic activity. The improvement in manufacturing was mainly driven by new orders and export orders, with a significant contribution from AI-related industrial chains, but the export surge was accompanied by higher imports, limiting the net growth contribution. On the non-manufacturing side, services improved slightly, and industries related to the digital economy and AI infrastructure maintained relatively strong momentum; construction has remained in contraction for six consecutive months, and the real estate slump continues to weigh on aggregate demand. Nomura maintains its forecast that real GDP growth year-on-year in Q2 will slow to 4.1% from 5.0% in Q1, and believes Beijing may accelerate bond issuance and fiscal spending in coming months to stabilize investment.

Analysis framework

The report uses a cross-analysis of the official headline PMI, sub-indices, company size, industry structure, and price components to assess the quality of changes in manufacturing and non-manufacturing activity. It focuses on comparing data for June, May, Q2, and Q1, and combines new orders, export orders, prices, inventories, employment, construction, and services activity indices to distinguish external-demand support, weak domestic demand, and changes in price pressure.

Methodology notes

• Macro Activity TrackingPMI Diffusion Index Analysis

  50 boom-bust line

  A PMI above 50 usually indicates expansion, while below 50 indicates contraction. Based on this, the report judges that manufacturing PMI's return to 50.3 signals expansion, but construction at 49.0 and several employment and new-order subcomponents still indicate contraction.

• Demand Structure AnalysisDecomposition of New Orders and New Export Orders

  Divergence between domestic and external demand

  The new orders index rose from 49.9 to 51.2, and new export orders rose from 48.6 to 50.1, indicating that improving external demand and order flow were the main drivers of the rebound in manufacturing PMI, while new orders in non-manufacturing remained at 48.0, showing domestic demand is still weak.

• Price and Inflation AnalysisInput and Output Price Components

  Month-on-month PPI pressure

  The input price index fell from 60.5 to 54.2, and the output price index fell from 51.9 to 48.2. Based on this, the report judges that inflation pressure has eased and supports its forecast that June PPI turned from 0.5% in May to -0.3% month-on-month.

• Structural Activity AnalysisComparison by Firm Size and Industry Components

  Divergence in activity

  PMI for medium-sized enterprises rose from 48.6 to 50.5, while large and small enterprises fell to 50.7 and 48.2 respectively; by industry, agricultural product processing, specialized equipment, and computers/communications/electronic equipment were stronger, while chemical fibers, rubber and plastics, and ferrous metal processing remained weak.

Asset mapping & comparison

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

• China Manufacturing

  Directly related

  Strengths

  Manufacturing PMI returned to 50.3, with both new orders and the production index in expansion territory.

  Weaknesses

  Subcomponents such as inventories, employment, and backlogs of orders remain below 50, indicating the recovery is uneven.

  Comparison

  The average manufacturing PMI in Q2 was 50.2, above 49.6 in Q1.

  Risks

  Quarter-end seasonal adjustment factors may exaggerate the scale of improvement, and subsequent activity data may fail to confirm the PMI rebound.

• AI-related Industrial Chain

  Positively related

  Strengths

  Production and new orders indices for computers, communications, and electronic equipment-related industries were both above 54, and services activity related to the digital economy was also above 55.

  Weaknesses

  Export growth was concentrated in AI-related sectors, with limited breadth across industries.

  Comparison

  AI-related areas were clearly stronger than traditional raw material chains such as chemical fibers, rubber and plastics, and ferrous metal processing.

  Risks

  AI-related exports also boosted imports, so the net contribution to real economic growth may be limited.

• China Services

  Moderately positive

  Strengths

  Services PMI rose from 50.3 to 50.4, with relatively high activity in parts of information technology, finance, and insurance.

  Weaknesses

  Air transport and real estate-related services were below 50, while new orders in non-manufacturing remained at 48.0.

  Comparison

  Services performed better than construction, but the improvement was limited.

  Risks

  A weak employment index may constrain household income growth and consumer demand.

• China Construction and Real Estate Chain

  Negatively related

  Strengths

  Construction PMI rose slightly from 48.8 to 49.0.

  Weaknesses

  Construction has been in contraction for six consecutive months, the real estate industry index is below 50, and the construction employment sub-index is only 42.3.

  Comparison

  Construction is clearly weaker than services and overall non-manufacturing.

  Risks

  A prolonged real estate slump may continue to drag on investment, employment, and domestic demand.

• Industrial Goods Prices and PPI

  Negative inflation signal

  Strengths

  Input cost pressure has retreated from high levels, helping ease cost-side pressure.

  Weaknesses

  Output prices fell below 50, indicating weak corporate pricing power.

  Comparison

  June output prices at 48.2 were significantly lower than 51.9 in May.

  Risks

  Falling prices may reflect insufficient demand and bring pressure on profit margins.

Key data

• Official Manufacturing PMIJune 2026 50.3, May 2026 50.0Above the market consensus of 50.1 and Nomura's forecast of 49.8; the Q2 average was 50.2, above 49.6 in Q1.
• Official Non-manufacturing PMIJune 2026 50.2, May 2026 50.1Above the market consensus of 49.9 and Nomura's forecast of 49.8, with both services and construction improving slightly.
• Manufacturing New OrdersJune 2026 51.2, May 2026 49.9One of the main drivers of the improvement in manufacturing PMI.
• Manufacturing New Export OrdersJune 2026 50.1, May 2026 48.6Returned to expansion territory, consistent with the report's view of strong export growth in June.
• Manufacturing Production IndexJune 2026 51.4, May 2026 51.2Only a mild improvement on the production side.
• Input Price IndexJune 2026 54.2, May 2026 60.5Still above 50, but clearly down from May.
• Output Price IndexJune 2026 48.2, May 2026 51.9Fell below 50 for the first time this year, pointing to a possible negative month-on-month PPI reading.
• Services PMIJune 2026 50.4, May 2026 50.3Activity indices for industries such as telecommunications, internet software, information technology, finance, and insurance were above 55.
• Construction PMIJune 2026 49.0, May 2026 48.8In contraction territory for six consecutive months, with the construction employment sub-index still as low as 42.3.
• Nomura Real GDP ForecastQ2 2026 year-on-year 4.1%Below 5.0% in Q1 2026, reflecting the report's judgment of slowing economic activity.

Impact & implications

The investment implications of the PMI data are fairly mixed: in the short term, the rebound in both the manufacturing and non-manufacturing headline indices eases concerns about a sharp economic slowdown, while AI-related exports, the digital economy, and parts of the equipment manufacturing chain still show resilience; however, domestic demand, real estate, construction, employment, and price components indicate that the foundation of the recovery remains unstable. If investment continues to decline while policymakers emphasize stabilizing investment, further fiscal support, faster bond issuance, and infrastructure-related spending may become key areas to watch.

Risks

• The PMI improvement may be affected by inadequate quarter-end seasonal adjustment, and actual activity data may not rebound in tandem.
• Domestic demand remains weighed down by the payback effect of trade-in subsidy policies, the real estate slump, and structural divergence.
• Continued contraction in construction and real estate-related industries may keep suppressing investment and employment.
• New orders and backlogs in non-manufacturing remain in contraction, limiting demand visibility.
• Output prices falling below 50 and continued contraction in selling prices may pressure corporate profit margins.
• Conflict in the Middle East is disrupting factory operations in raw material industries, which may increase uncertainty in production and supply chains.

What to watch

• Whether June and Q2 actual activity data confirm the PMI improvement.
• Whether June export growth remains concentrated in AI-related sectors, and how the simultaneous rise in imports affects net export contribution.
• Whether PPI month-on-month turns to -0.3% as Nomura forecasts.
• Whether fixed asset investment and retail sales can recover from May's contraction.
• Whether Beijing accelerates bond issuance and increases fiscal spending.
• Whether construction PMI, construction employment, and real estate-related services indices continue to remain below 50.