China factory activity likely nudged back into growth in June

China’s factory activity likely edged back into growth in June, with a Reuters poll of 23 economists pointing to an official manufacturing purchasing managers’ index of 50.1, only a hair above the 50-point line that separates expansion from contraction. The reading would barely improve from 50.0 in May, signaling stabilization rather than a clean rebound.

That marginal uptick would still matter because it suggests the industrial side of the world’s second-largest economy is being held up by a narrow set of supports. Demand for high-tech exports tied to the global AI boom has helped offset pressure elsewhere, but domestic demand remains weak and the broader recovery is still fragile. The picture is one of meagre growth, not momentum.

The strain on factories has not disappeared. A burst of AI-related investment has cushioned the hit from export turmoil many had feared from Middle East disruption, but stockpiling linked to higher energy costs has started to fade. Overseas buyers are also beginning to run down inventories, which could remove another layer of support for Chinese manufacturers just as they are trying to hold output steady. The property crisis continues to weigh on spending, leaving consumers cautious and manufacturers exposed to uneven orders at home.

Trade policy uncertainty has added another wrinkle. Exporters appeared to have frontloaded shipments in June as they braced for shifting U.S. trade policy, while some economists warned that tariffs due in late July could become a new burden. That makes the June PMI one of the first hard clues on whether factories can keep benefiting from the current surge in chip and semiconductor demand, or whether the lift from AI-linked orders will begin to fade.

Separate industrial profits data showed the strain is not evenly distributed. Upstream sectors and computer-related firms posted stronger gains, while downstream manufacturers remained under pressure. The central bank has also instructed some commercial banks to increase lending, another sign that credit demand is weak and that officials are still trying to keep financing flowing into an economy that has yet to secure a broad-based recovery.