Barclays China Outlook: Uneven Recovery
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Barclays assesses that June PMI and high-frequency data reveal an export-driven production recovery in China, while domestic demand and labor markets remain weak. The property sector weakened further, and the 618 shopping festival growth slowed significantly.
The official manufacturing PMI rose to 50.3 in June, beating both Barclays and consensus estimates of 50.1. The production index edged up, and new export orders reached their second-highest level this year. However, sector performance continues to diverge. The high-tech manufacturing PMI climbed to 53.5, a multi-year high, while traditional sectors like petroleum-related industries and ferrous metal processing remained in contraction.
Domestic consumption indicators stayed soft. E-commerce sales growth decelerated, and auto sales maintained double-digit declines. New home sales growth slowed further, though existing home transactions still posted low double-digit gains. Meanwhile, port cargo throughput rose 5.2% year-on-year, signaling sustained export resilience.
Regarding pricing, the input price index fell to 54.2, and the output price index dropped back into contraction at 48.2. The PBOC signaled a dovish stance through an overnight reverse repo operation. Barclays expects June CPI inflation to ease to 1.0% and PPI inflation to rise to 4.0%, alongside credit growth slowing to 7.6%. The Politburo meeting in late October will be critical for assessing potential new stimulus.