Commerzbank’s Dr. Henry Hao argues that resilient manufacturing and non-manufacturing PMIs suggest China’s economy is not weak enough to warrant immediate broad-based easing, even as domestic demand indicators stay soft. Policymakers are expected to maintain targeted rather than aggressive stimulus while export-led growth holds up, with the July Politburo meeting seen as a key checkpoint for second-half fiscal and monetary decisions.

Headline resilience and cautious easing

"The official PMI readings for June 2026 reflect an economy walking a tightrope. A surge in high-tech exports has buffered the manufacturing sector, pushing it further into expansion territory. Yet, this external strength stands in stark contrast to cooling domestic market, creating a two-speed dynamic that complicates the near-term policy outlook."

"For policymakers, the latest data send a mixed signal. Resilient manufacturing and non-manufacturing PMIs suggest that the economy has not weakened enough to justify immediate broad-based easing. At the same time, softer domestic indicators, including retail sales and fixed-asset investment, point to persistent underlying demand weakness. "

"This combination could delay the deployment of stronger policy measures, as authorities may prefer to wait for clearer evidence that growth momentum is slipping more broadly."

"In our view, this points to a more patient policy stance in the near term. As long as export-led factory activity continues to support headline growth, policymakers may keep stimulus targeted rather than aggressive. "

"The July Politburo meeting will therefore be an important checkpoint, as it should provide a clearer signal on whether Beijing intends to step up fiscal or monetary support in the second half of the year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)