Buoyed by improving market demand amid robust global appetite for artificial intelligence-related products and stronger pro-growth policy support, China's factory activity returned to expansion in June after standing at the boom-bust threshold a month earlier, official data showed on Tuesday.

The latest readings, analysts said, pointed to stronger new growth drivers and resilient export performance as key pillars of economic stabilization, bolstering confidence that China's economy will stay on track to meet its full-year growth target.

Data from the National Bureau of Statistics show that China's official purchasing managers' index for the manufacturing sector came in at 50.3 in June, up 0.3 percentage points from the previous month.

Wang Qing, chief macroeconomic analyst at Orient Golden Credit Rating International, said the rebound was mainly driven by a faster recovery in market demand, as the new orders sub-index rose 1.3 percentage points to 51.2, the highest level in three months, according to the NBS.

"Domestic demand in the manufacturing sector improved notably," said Wen Bin, chief economist at China Minsheng Bank.

Wen said the steady implementation of the "Six Networks" initiative, measures to promote large-scale equipment upgrades and consumer goods trade-ins, as well as a mild recovery in the consumer market, had provided strong support for demand.

The improvement was not limited to domestic demand. On the external front, the new export orders subindex returned to expansion territory at 50.1, according to the NBS.

"The notable easing of tensions in the Middle East, coupled with sustained momentum in the AI sector, also supported the rebound in export activity," Wen added.

Echoing that view, Wang said China's exports are expected to sustain robust growth in June, lending solid support to the overall performance of the manufacturing sector.

New growth drivers also provided strong support. The PMI for high-tech manufacturing stood at 53.5 in June, compared with 52.9 in May, while the reading for equipment manufacturing reached 52.5, up from 52.1 in May, with both staying firmly in expansion territory, according to the NBS.

"Advanced manufacturing continued to make robust progress, further strengthening its role as a key driver of economic growth," said Huo Lihui, an NBS statistician.

Highlighting AI's potential to reshape growth momentum, Cai Fang, a member of the academic divisions of the Chinese Academy of Social Sciences, said, "AI is expected to help China ease deflationary pressure, improve the balance between supply and demand, and foster a new cycle of economic growth."

The overall improvement in the PMI also offered an encouraging signal for industrial activity heading into the end of the quarter, said Lynn Song, chief economist for China at Dutch bank ING.

The bank expects China's GDP growth to moderate to 4.6 percent year-on-year in the second quarter. But with first-quarter growth having come in stronger than expected, Song said the economy remains on track to deliver first-half growth broadly consistent with the country's full-year target.

The improvement was also seen in non-manufacturing activity. China's non-manufacturing PMI, which includes sub-indexes for service sector activity and construction, stood at 50.2, edging up 0.1 percentage point from May, NBS data showed.

Despite the simultaneous pickup in manufacturing and non-manufacturing activity, economists cautioned that the recovery still needed to become more balanced, as traditional industries and small, medium-sized and micro enterprises continued to face pressure, and domestic demand had yet to gain a firmer footing.

Tang Guanghua, an analyst at Shenyin & Wanguo Futures, said more targeted support measures should be rolled out to help small, medium-sized and micro enterprises reach wider markets and improve demand flows through traditional industrial chains.

source: China Daily

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