China's factory activity expands in June with boost from tech exports

China’s factory activity picked up pace in June, an official survey showed Tuesday, as demand for artificial intelligence hardware made exports robust.

The official manufacturing purchasing managers index, or PMI, expanded to 50.3 from 50 in May, better than economists’ expectations, according to the National Bureau of Statistics. That’s despite worries over China’s economy losing steam.

On a 0 to 100 scale, a reading above 50 reflects expansion, while below 50 indicates contraction.

The sub-index for new orders climbed to 51.2 in June from 49.9 in May, and the sub-index on production also expanded to 51.4 from 51.2.

“China’s economy has regained some momentum lately. But this remains heavily dependent on exports and AI-related tech,” Julian Evans-Pritchard, head of China economics at Capital Economics, wrote in a Tuesday note. “External demand remains the main engine of growth for China’s manufacturing sector.”

Huo Lihui, a chief statistician at the National Bureau of Statistics, said in a statement that the June data reflected that China’s economic climate was warming.

Some economists cautioned, however, that Chinese consumers have remained cautious after a years-long property sector downturn and domestic demand is still sluggish.

Further policy support from the Chinese government this year to help boost domestic consumption and investment would be beneficial and could help avoid an increasingly unbalanced growth pattern, said Lynn Song, chief economist for Greater China at ING Bank.

Chinese leaders have set an economic growth target of 4.5% to 5% for the whole of this year, with economists expecting the country is likely to meet that goal with the help of surging AI-related exports.