China’s economy showed signs of regaining momentum in June after slowing in April and May, with factory activity and retail sales improving as shipments to the United States rebounded. A survey by China Beige Book of 1,321 businesses from June 1 to 22 found that manufacturing posted the clearest gains and retail sales also recovered from the previous month. The pickup came as Chinese exports to the U.S. rose 11.3% in April and 35.4% in May, reversing much of the weakness seen during most of last year.
Trade appears to have been a major driver of the improvement. China Beige Book said factory activity accelerated in June and that orders bound for the U.S. recorded sharp year-on-year growth. S&P Global said freight rates between Asia and the U.S. climbed to their highest level in nearly two years, attributing the increase to importers moving shipments early ahead of possible higher fuel surcharges and supplier price increases. Tianchen Xu of the Economist Intelligence Unit said businesses were rushing goods to the U.S. before tariffs could rise again, and said China’s weak momentum likely turned around in June, led primarily by the external sector.
At the same time, the latest signs of strength followed a softer stretch for the world’s second-largest economy. Official figures showed retail sales fell in May for the first time since the pandemic, while sales growth during the midyear 618 shopping festival slowed sharply. Manufacturing investment on a year-to-date basis also fell in May for the first time since December 2020, with declines in metals, chemicals and auto production weighing on the sector. Even in June, the business survey found uneven consumer trends, including stronger luxury goods spending but weaker tourism-related demand.
Analysts also differ on how durable the rebound will be. China Beige Book said the quarter was ending on a more positive note than it began, but warned that similar performance in July and August would be needed before celebrating a sustained turnaround. S&P Global said the recent stockpiling linked to U.S. shipments could fade by late July. China Beige Book also found export order growth to Asia and other developing economies slowed in June from May, while growth to Europe was steady.
Looking ahead, investors are awaiting a fuller official picture. China is due to release June trade data on July 14, followed by retail sales, industrial output and second-quarter GDP on July 15. The official manufacturing purchasing managers’ index is also expected shortly, with a Reuters poll forecasting a 50.1 reading, which would place activity back in expansion territory. Goldman Sachs has raised its third-quarter GDP growth forecast to 5% from 4.5% on expectations of faster fiscal spending and lower oil prices, after projecting a weaker 3.5% pace for the second quarter.