China's composite PMI edges to 50.6 in June, recovery fragile

China's official composite PMI edged up to 50.6 in June from 50.5, barely above the 50 threshold as the economy struggles to build momentum.

China's official composite purchasing managers index rose to 50.6 in June from 50.5, with the reading barely above the 50 expansion threshold as the post-pandemic recovery continued to lose steam, data from the National Bureau of Statistics showed Wednesday.

The June reading of 50.6 compares with 50.5 in May and 51.2 in April, indicating a gradual deceleration in economic activity through the second quarter. The composite index has now held above 50 since March, when it stood at 51.0.

The data suggests China's economy is stabilizing rather than rebounding strongly, reinforcing expectations that Beijing will need to deploy additional fiscal and monetary stimulus to meet its annual growth target of around 5%. Markets will watch for potential policy action at the upcoming Politburo meeting later this month.

The composite PMI's trajectory through the second quarter points to a deceleration in China's economic momentum. After starting the quarter at 51.0 in March, the index slipped to 51.2 in April before declining to 50.5 in May and recovering only marginally to 50.6 in June.

The reading comes as China's property sector remains in a prolonged downturn, consumer confidence stays subdued, and external demand faces headwinds from elevated trade tensions. The manufacturing PMI component has hovered near the 50 threshold in recent months, while the services and construction sub-indices have shown more resilience but also moderated from earlier peaks.

The composite PMI averaged 51.8 during the first half of 2023 before slipping below 50 in the second half of that year. The index has spent most of 2024 and 2025 oscillating around the 50 mark, reflecting the structural challenges facing the world's second-largest economy.

The yuan traded little changed against the dollar following the data release, with USD/CNH hovering near 7.25. China's 10-year government bond yield held steady at around 2.15 percent, while the CSI 300 index edged lower in early trading as investors weighed the implications of the tepid reading.

The data reinforces the case for additional policy support. Market participants are pricing in a potential reserve requirement ratio cut in the third quarter, following the PBoC's last RRR reduction of 25 basis points in January. The 1-year medium-term lending facility rate currently stands at 2.50 percent, with some economists expecting a 10- to 20-basis-point cut before year-end.

This article is for informational purposes only and does not constitute investment advice.