Zhang Ao-Ping: June PMI Still within Contraction Range, Need to Boost Domestic Demand

Writer: Economist, Director of New Future Research Institute Zhang Ao-Ping

June 30th, the National Bureau of Statistics released the manufacturing PMI, non-manufacturing business activity index, and comprehensive PMI output index for June 2025. Among them, the manufacturing PMI was 49.7%, up 0.2 percentage points from last month, still within the contraction range. The non-manufacturing business activity index was 50.5%, up 0.2 percentage points from last month; and the comprehensive PMI output index was 50.7%, up 0.3 percentage points from last month, all above the critical point.

The June PMI data recorded a value of 49.7%, with some improvement over last month, but still within a contraction range for three consecutive months, indicating that the foundation of economic recovery is not yet stable.

The author believes that the external demand is expected to slow down significantly due to the "preemptive export" and "transformation of old into new" effects, which will have a negative impact on domestic demand. Therefore, it is necessary to increase support for domestic demand by issuing and using policy tools such as special bonds, policy-based financial instruments, and long-term special treasury bonds.

Firstly, from the 13 categories of indexes in the manufacturing PMI system, it can be seen that both supply and demand are rebounding, but the supply is stronger than demand. Specifically:

1. Supply and demand are rebounding, with supply being stronger than demand: The production index was 51.0%, up 0.3 percentage points from last month; and the new orders index was 50.2%, up 0.4 percentage points from last month, both above the critical point but still in a state of contraction.

2. External demand is still below the critical point: The new export orders index is a leading indicator of exports, with June PMI new export orders index being 47.7%, up 0.2 percentage points from last month but still below the critical point, reflecting that the "preemptive export" and "transformation of old into new" effects are still supporting external demand, but the support is weakening.

3. Prices are running weakly: The main raw material purchase price index, ex-factory price index, and PPI trend index are all moving in the same direction, with June's main raw material purchase price index being 48.4%, ex-factory price index being 46.2%, both below the critical point.

Secondly, from an enterprise perspective, small and medium-sized enterprises face greater pressure. Large enterprises PMI was 51.2%, up 0.5 percentage points from last month, above the critical point; medium-sized enterprises PMI was 48.6%, up 1.1 percentage points from last month, below the critical point; and small enterprises PMI was 47.3%, down 2.0 percentage points from last month, below the critical point.

As of May 31st, there were over 58 million private businesses in China, with small and medium-sized enterprises accounting for more than 95%. As small and medium-sized enterprises create over 80% of urban employment, their operating pressure is significant and will directly affect employment. The June employment index was 47.9%, down 0.2 percentage points from last month, below the critical point.

Given that the current economic main contradiction is still demand-deficient, and external demand is expected to slow down significantly, I suggest that various regions and departments should make expanding domestic demand their top priority in the next stage.

In terms of fiscal policy, it is necessary to speed up the issuance and use of special bonds, long-term treasury bonds, and other policy tools to support the development of key industries such as education, sports, culture, tourism, and new-type production factors. In terms of monetary policy, it is necessary to accelerate the implementation of new financial instruments to support service consumption-related infrastructure construction and new-type production factor development.

Editor-in-Chief: Liu Anqi | Reviewer: Zhang Yipeng | Auditor: Li Zhen | Supervisor: Gushen