China’s official manufacturing PMI for June rose to 50.3, up from 50 in May, signaling expansion driven by AI hardware demand boosting exports, with new orders and production also higher (51.2 and 51.4 respectively).

Non-manufacturing PMI inched up to 50.2 and the composite PMI stood at 50.6, indicating broad but cautious economic expansion.

Policy support aimed at boosting domestic consumption and investment could help stabilize growth and reduce reliance on exports and AI exports.

Risks to continued growth include dependence on external AI demand, potential new U.S. trade restrictions, rising domestic input costs, and weakness in the property market affecting traditional manufacturing.

Analysts say export strength is lifting the economy, but the recovery remains volatile amid trade frictions with the EU and broader geopolitical risks.

Despite the uptick, domestic demand remains sluggish due to cautious consumers and a slow property sector, with some fearing deflationary pressures in manufacturing.

Upturn tied to robust global AI investment and front-loading ahead of anticipated US tariffs, plus improving domestic demand from lower upstream costs.

Exports to meet AI-related demand and pre-emptive tariff avoidance were key drivers, alongside better domestic demand from lower upstream costs.

Overall, the improvement reflects strong AI-related export demand, with policy easing and fiscal support cited as potential tailwinds.

Headwinds could emerge if US-Iran tensions ease and oil prices stabilize, potentially reducing near-term export boosts.

There is a structural divergence: high-tech manufacturing strengthens while property-linked and domestic retail sectors lag, signaling a two-speed industrial economy.

The combination of AI-driven exports, Belt and Road activity, and leadership in EVs and clean energy supports an outlook of durable earnings for China’s upgrade cycle, justifying a constructive stance on AI and high-tech manufacturing stocks.