By Joe Cash

China’s Manufacturing Activity Declines for Third Month

BEIJING (Reuters) – China’s manufacturing activity shrank for a third consecutive month in June, though at a slower pace. Increases in new orders, purchasing volumes, and supplier delivery times indicate that policy support implemented since late last year is beginning to have an effect.

Despite this, business sentiment remains low, as a recent survey showed employment, factory gate prices, and new export orders continue to struggle. Calls for additional stimulus persist as authorities contend with U.S. President Donald Trump’s tariff measures and ongoing weakness in the property sector.

The National Bureau of Statistics purchasing managers’ index (PMI) rose slightly to 49.7 in June from 49.5 in May. While matching the median forecast from a Reuters poll, it remains below 50, which marks the threshold between growth and contraction.

Xu Tianchen, a senior economist at the Economist Intelligence Unit, commented, “Two months of successive improvement is a decent reading considering June was the first full month without Trump’s prohibitive tariffs of over 100%.” He also noted that manufacturers are preparing to ship goods for the holiday season as tariffs decrease.

In June, the new export orders sub-index remained in contraction for the 14th month, rising marginally to 47.7 from 47.5 in May. Employment figures worsened further, even as new domestic orders rose to 50.2 from 49.8, and purchasing volumes increased from 47.6 to 50.2. This offers some hope to policymakers that domestic demand might be beginning to recover.

Zichun Huang, China economist at Capital Economics, pointed out that the PMIs suggest the world’s second-largest economy may have regained some momentum, but warned that tensions with the West would continue to put pressure on exports alongside deflationary signs.

The non-manufacturing PMI, which covers services and construction, grew to 50.5 from 50.3. Although activity in sectors such as food and beverages, travel, hospitality, and logistics declined, an increase in the construction PMI to a three-month high of 52.8 offset this decline, thanks to ongoing fiscal support for infrastructure spending.

However, uncertainty persists among factory owners, as the business outlook index fell in June, implying that producers are waiting for a more solid trade agreement following the recent fragile framework agreed between Beijing and Washington.

To avoid stagnation or contraction in the vital manufacturing sector, especially in light of an ambitious growth target of “around 5%” for 2025, policymakers face pressure to implement more support measures.

In May, profits at China’s industrial firms significantly declined due to weak demand and falling product prices. Policymakers express confidence in advancing reforms intended to shift China’s economy from a manufacturing-led model to one driven by consumer demand, according to Premier Li Qiang at recent forums.

Li stated that this shift is essential for China’s future and could proceed while maintaining strong growth. However, economists caution that this transition could take years and may initially slow the economy.

Dan Wang, the China director at Eurasia Group, predicts that exports will slow down in the latter half of the year, with intensifying domestic deflationary pressures. He believes that while household consumption may not serve as a short-term growth driver, infrastructure fiscal spending could yield the growth necessary to meet this year’s targets.