A private gauge showed China's factory activity expanded at a faster rate in June, contrasting with the official index remaining in contractionary territory.
The China Caixin manufacturing purchasing managers index rose to 51.8 in June from 51.7 in May, the highest reading since June 2021, according to data released Monday by Caixin Media Co. and S&P Global.
The reading stayed above the 50 mark separating activity expansion from contraction for an eighth consecutive month. That pointed in a different direction than the competing official gauge, which remained unchanged at 49.5 in June. Compared with the official index, the Caixin PMI tracks smaller and private companies more closely.
Both supply and demand continued to improve in June, with the pace of manufacturing output growth accelerating for five straight months and the production subindex hitting a two-year high, according to Caixin.
The gauge for total new orders remained in expansionary territory for the 11th consecutive month, with demand for consumer and intermediate goods stronger than that for investment goods, said Wang Zhe, an economist at Caixin Insights Group. Meanwhile, exports grew at the slowest pace in six months, pointing to weaker overseas demand, Wang said.
While the employment subindex remained in contractionary territory for the 10th straight month, it showed signs of a stabilizing job market in June, suggesting that the number of companies hiring workers was roughly equal to those shrinking their workforce, according to Caixin.
"The employment picture was better at companies making consumer and intermediate goods than at those producing investment products," Wang said.
Higher prices of raw materials such as steel, copper and aluminum, as well as rising freight costs, pushed up input costs, causing the corresponding gauge to hit its highest in two years, according to Caixin. This helped output prices edge up in June, sending the indicator into expansionary territory for the first time this year, Caixin said.
Despite the upbeat figures, however, company executives have grown less optimistic due to worries around the state of the economy and intense market competition. While the gauge for future output expectations remained in positive territory, it fell to the lowest level since November 2019, according to Caixin.
Looking ahead, Caixin's Wang said insufficient market confidence and effective demand remain key challenges and more policy support would be needed.
"Efforts in optimizing real estate regulations, upgrading equipment on a large scale, replacing old consumer goods, and the 'three major projects'--those involving affordable housing, urban village renovation, and dual-use public facilities that can be used for everyday and emergency purposes--need to be strengthened," Wang said.
"Fiscal and tax reforms should focus on creating more optimistic expectations among market participants," Wang added.