Summary of Key Economic Trends
In June, China's economic momentum significantly improved: The Manufacturing Purchasing Managers Index (PMI) returned to the expansion zone above 50%, with both the Non-Manufacturing PMI and the Composite PMI also showing positive trends. External demand has recovered due to the easing of international trade and the growth of the AI sector, while domestic demand has been stabilized by special government bonds and the implementation of various projects. There is a clear divergence between new and old drivers of economic growth—new industries such as high-tech manufacturing are performing well, whereas traditional sectors like real estate remain sluggish. Price pressures have eased to some extent. The government has adopted a multi-pronged approach involving fiscal, monetary measures, and efforts to boost domestic demand in order to stabilize economic growth, although the real estate market is still in a period of consolidation.
Detailed Analysis
1. Overall Economic Recovery: Manufacturing Returns to Expansion, Services Reach New Highs
The manufacturing PMI in June reached 50.3%, up from 49.9% the previous month, indicating a return above the expansion threshold and better performance than in the same period of previous years (superior to seasonal trends). This suggests an increase in factory orders and higher production activity—for example, the new orders index rose by 1.3 percentage points to 51.2%, and the production index has remained above 51% for four consecutive months, indicating both demand and production are improving.
The services sector also performed well, with the Business Activity Index reaching 50.4%, the highest level since early 2025. Industries such as telecommunications, internet software, and finance were particularly robust (with indices exceeding 55%). However, sectors like air transportation and real estate continued to contract. Although the construction PMI increased by 0.2 percentage points to 49%, it was still weaker than in the same period of previous years. The civil engineering sector, which is related to infrastructure projects, saw high momentum (with an index above 55%) due to the rapid issuance of special government bonds and the implementation of numerous projects.
2. Divergence Between New and Old Drivers of Growth
New drivers of growth are gaining strength: The PMI for high-tech manufacturing rose to 53.5%, and that for equipment manufacturing to 52.5%, both showing continuous improvement for four months. AI-related services and software industries were also very active. The consumer goods sector returned to the expansion zone (50.2%), indicating an improvement in consumer spending.
Traditional sectors, however, are still struggling: The real estate business activity index fell below 50%. Although sales of commercial housing in 30 cities increased by 2.1% month-on-month, they decreased significantly year-on-year, as did land transactions. This indicates a slight improvement but not a full recovery. The PMI for the basic materials sector remained at 47.1%, indicating continued contraction.
3. Alleviation of Price Pressures
The cost of raw materials has slowed down, and factories are selling products at lower prices:
The index for the purchase price of raw materials dropped from 60.5% last month to 54.2%, and the ex-factory price index fell to 48.2% (below 50%). This means that companies are facing less pressure on costs due to lower prices for raw materials and higher selling prices for their products.
The reason for this is the significant decline in international oil prices (Brent crude down to $73 per barrel) and reductions in the prices of metals and gold. Domestic prices for construction materials such as rebar, cement, and glass have also decreased. The proportion of companies experiencing high raw material costs has been declining for two consecutive months, which is good news for businesses.
4. Government's Comprehensive Policy Measures
To stabilize economic growth, policy implementation accelerated significantly in June:
- Fiscal Policy: More than 570 billion yuan in special government bonds were issued (the highest amount for a single month this year). Funds for equipment upgrades ($200 billion) and consumer goods replacement programs ($62.5 billion) were allocated, and projects such as the "Six Networks" initiative were launched, directly boosting infrastructure and consumption.
- Monetary Policy: The central bank increased the volume of Medium-Term Lending Facility (MLF) by 500 billion yuan to stabilize the money market and improve short-term interest rate control.
- Boosting Domestic Demand: Initiatives such as "Artificial Intelligence + Consumption" (e.g., AI-powered shopping assistants, smart home appliances) and the automotive after-sales market (modifications, camping, repairs) were promoted to tap into existing consumer demand. Meetings were held with private enterprises to help them find projects and funding.
- Support for Technological Industries: Priority was given to supporting new drivers of growth in areas like AI, computing power, and biomedicine. A new energy system plan was released to promote green transformation and energy security.
5. Real Estate Market Still in Consolidation
There are some positive signs in the real estate market: Sales of commercial housing in 30 cities increased by 2.1% month-on-month, and land transactions rose by 4.9% month-on-month, but year-on-year declines continued, indicating that the market has only stopped declining and has not yet recovered. The construction sector remains sluggish, and business confidence is low. More policy support may be needed for the real estate market to fully recover.
Conclusion
Overall, the economy showed improvement in June, but there is still a divergence between new and old drivers of growth, with the real estate market in a period of consolidation. The effects of government policies are already evident. The next step will be to analyze the GDP data for the second quarter and the outcomes of the Political Bureau meeting at the end of July to determine the economic trend for the second half of the year. For individuals, there are more opportunities in new industries, and consumer spending may gradually improve, but investment in real estate should be approached with caution.