BEIJING: China’s factory activity improved for a second month but remained in contraction, as trade rebounded after the ceasefire in the tariff war with the United States, while weak domestic demand weighed on the economy.

The official manufacturing purchasing managers’ index (PMI) was 49.7 in June, versus 49.5 in the previous month, slightly exceeding the median estimate in a Bloomberg survey of analysts. A reading below 50 indicates contraction.

The non-manufacturing measure of activity in construction and services rose to 50.5 from 50.3 last month, the National Bureau of Statistics (NBS) said yesterday. That compared with a forecast of 50.3.

The offshore yuan extended its gain after the data release and was 0.2% stronger at 7.1626 per US dollar.

Futures on 30-year government bonds fell as much as 0.6%, the most in a month, as traders dialled back bets on further monetary easing.

For manufacturing, the new orders index expanded for the first time in three months, though a gauge of employment worsened again after a slight improvement in May.

Among the 21 industries surveyed, more than half were in expansion territory, according to the statistics service.

“Manufacturing production activities accelerated and market demand improved,” Zhao Qinghe, a senior NBS statistician, said in a statement.

The PMI figures are the first official data available each month to provide a snapshot of the Chinese economy.

The latest reading captured the first full month after Beijing and Washington agreed to a 90-day truce in their trade war.

Overseas demand, which made up almost 40% of economic growth in the first quarter, is helping compensate for sluggish spending by consumers at home.

But it also makes China more reliant on maintaining stable ties with trade partners such as the United States, with whom Beijing just finalised a trade framework negotiated in Geneva.

The pact codified the terms laid out in trade talks between the United States and China, including a commitment from Beijing to deliver rare earths used in everything from wind turbines to jet planes.

The strength of Chinese manufacturing in the rest of the year remains in question given an uncertain export outlook, with a more lasting trade deal still elusive.

Several global banks, including Bank of America Corp and Citigroup Inc, recently raised forecasts for China’s growth in 2025 as the tariff truce improves confidence.

Even so, economists surveyed by Bloomberg expect gross domestic product to expand 4.5% this year, significantly below the official target of around 5%.

With the manufacturing output index hitting a three-month high of 51, industrial production in June “won’t be too bad”, said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group Ltd.

“The question for policymakers is deflation and joblessness instead of growth,” he said. “I am not worried about China’s gross domestic product.”

President Donald Trump’s China envoy, David Perdue, recently warned the United States wanted to revamp its trading relationship with China and the world by bringing many critical supply chains back onshore.

The US ambassador said American leaders had been “blind to the hollowing out of many US strategic industries”, a sign that trade tensions between the two nations could persist. — Bloomberg