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Chinese small factories' exports hit new high, but weak domestic demand causes overall contraction.

TraderKnows
TraderKnows
07-01

Recently, China's manufacturing sector as a whole has seen a contraction, but exports from small factories have increased.

A private index showed that factory activity among China's small manufacturers grew at the fastest pace since 2021 due to increased overseas orders. However, another broader survey indicated that weak domestic demand and trade frictions led to another contraction in the industrial sector.

The Caixin/S&P Global Manufacturing PMI released on Monday showed that the index rose to 51.8 in June from 51.7 last month, reaching the fastest pace since May 2021 and exceeding analysts' forecast of 51.2.

The index mainly covers smaller, export-oriented enterprises and has stayed above the 50-point mark for eight consecutive months, indicating economic growth. This is a private index compiled jointly by Caixin Media and S&P Global, focusing on smaller companies in China’s manufacturing sector, particularly those oriented towards exports.

In contrast, a broader official PMI released on Sunday showed that overall manufacturing activity declined in June, marking the second consecutive month of weakness. Service sector activity fell to a five-month low.

The Caixin PMI survey showed that manufacturing output growth in June hit its highest level in two years. The order index, including the overseas order index, remained in the expansion zone last month, but the growth rate slowed.

The survey indicated that demand for consumer goods and intermediate goods was stronger than for investment goods.

China's exports in May exceeded expectations, but analysts say the sustainability of export sales needs to be observed due to recent trade tensions.

Zichun Huang, China economist at Capital Economics, wrote in a research report, "June's PMI data is mixed, but overall it indicates that the economic recovery slowed down last month."

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