China's official PMI hit 50.3 in June, beating forecasts, as AI-related exports offset weak domestic demand and a deepening property downturn.
China's manufacturing sector expanded faster than expected in June, driven by strong demand for high-tech exports tied to the global AI buildout.
The official purchasing managers' index rose to 50.3 from 50 in May, the National Bureau of Statistics said Tuesday. Economists had forecast 50.1. The 50-point line separates expansion from contraction.
The nonmanufacturing gauge, covering construction and services, edged up to 50.2 from 50.1.
Exports are the bright spot. U.S. importers rushed to bring forward shipments after President Donald Trump's meeting with Chinese leader Xi Jinping in May, and ahead of the July expiry of a 10% levy under Section 122. Washington has not yet imposed additional duties from its Section 301 probes into overcapacity and forced labor practices.
Industrial profits in upstream sectors, AI-related industries, and renewable-energy equipment posted sharp gains in the latest data. Downstream manufacturers stayed under pressure. Retail sales fell in May for the first time in more than three years. New home prices declined at a faster pace.
"The hope of rebalancing is dashing," said Helen Qiao, China economist at Bank of America Global Research, citing stronger exports and weaker domestic demand. BofA upgraded its China export growth forecast for this year to 15%, citing AI-related investment, global demand for renewable equipment, and electric vehicles.
The imbalance between resilient supply and muted demand is likely to renew downward pressure on inflation in the second half of the year, once the boost from higher energy costs fades, Qiao added.
Policymakers have refrained from meaningful easing to boost demand. Economists largely rule out near-term stimulus such as policy rate cuts. Goldman Sachs expects rising fiscal pressures to spur incremental support through faster government borrowing in the coming months, while leaving the door open to further easing if third-quarter GDP disappoints.
The RatingDog manufacturing PMI, a private survey that tends to capture smaller and more export-oriented firms, is due Wednesday. Economists expect a reading of 51.6, down from 51.8 in May.
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