China's official manufacturing Purchasing Managers' Index (PMI) climbed to 50.3 in June 2026 from 50.0 in May, signaling a return to factory expansion after a period of stagnation [1, 2, 3]. The non-manufacturing PMI edged up to 50.2, while the composite PMI recorded 50.6, highlighting broader economic activity growth [1, 2, 3].

The rebound in manufacturing was driven primarily by surging exports of high-tech products linked to the artificial intelligence (AI) boom. Automated data processing equipment exports surged 60% year-on-year in May, compared to the modest 1.9% rise in furniture exports, indicating strong global demand for advanced technology goods [1, 2, 3]. Xu Tianchen, senior economist at the Economist Intelligence Unit, noted a "new round of trade 'rush exports' in June, as exporters accelerated shipments to the U.S. ahead of new tariff measures effective at the end of July" [3].

Private sector data from a June 2026 S&P Global survey showed China's private manufacturing PMI at 51.7—the strongest quarterly reading since late 2020—with the sector also seeing employment rise for the first time in three months. Yao Yu, founder of RatingDog, said the manufacturing sector "maintained a steady expansion in June, supported by sustained new order growth, easing cost pressures and improved labour market conditions" [4].

Despite robust factory output, some challenges persist. Retail sales in China declined in May for the first time in over three years, while new home prices fell at an accelerated pace [1, 2]. To support the economy, China's central bank instructed commercial banks in late June to increase lending [1, 2].

New national security regulations on overseas investment took effect on July 1, 2026, targeting sectors like AI, semiconductors, and green technology. These rules allow government reviews of overseas deals that may threaten national security and restrict transfers of technology and data [5, 6, 7]. Experts warn the rules could limit China's tech ecosystem's access to global markets and hamper collaboration. Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis, remarked, "This is terrible for Europe, because if anybody were to believe that we would rely on China’s open-weight (AI) models, this is wrong — we can't" [5].

Notable advancements in Chinese AI chip technology continue. Meituan recently introduced LongCat-2.0, an AI large language model trained entirely on domestically produced chips, marking a milestone in China's tech self-reliance effort [8].

Regionally, Japanese manufacturers also saw improved business sentiment in the second quarter, driven by AI-related demand despite geopolitical tensions, while Malaysia’s manufacturing PMI rose to 50.7 in June amid steady hiring and stronger orders [9, 10]. Malaysian retailer Eco-Shop Marketing Bhd’s shares climbed nearly 6% on July 2, reflecting optimism about consumer demand normalization [11].

China’s central bank lending push and the new investment regulations will likely shape economic and industrial trends in the coming months as the country balances growth and national security priorities.