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China claims that its factory activity expanded in June, but winds against it remain

China said on Tuesday that manufacturing activity expanded in June with the purchasing manager’s official index reaching 50.9.

Economists interviewed by Reuters had expected the official manufacturing PMI number to reach 50.4. PMI readings above 50 indicate expansion, while readings below that level indicate contraction.

In May, the official manufacturing PMI hit 50.6, according to the National Bureau of Statistics. PMI readings are sequential.

The bureau said in its announcement of the PMI reading that supply and demand are starting to rise, with the new orders index rising for two consecutive months, according to a CNBC translation. Better readings in both the import and export indices are helping as major economies reopen.

However, uncertainties remain, the office warned, adding that the pandemic has not been effectively controlled overseas.

The data showed that the index for new export orders was still in contractional territory, although the reading improved, reaching 42.6 for the month of June from 35.3 in May.

Chinese manufacturing activity has been hit by shocks on both the supply and demand sides due to large-scale blockages in many parts of the world aimed at containing the coronavirus pandemic. The virus first emerged late last year in the central Chinese city of Wuhan.

While Chinese factories faced problems in fulfilling orders at the start of the pandemic, they are now facing a global demand crisis as the number of infected people exceeded the 1

0 million mark, according to Johns Hopkins University.

In the meantime, the official services PMI arrived at 54.4 in June from 53.6 in May.

“These rising SMEs suggest that China’s recovery is still on track, but the momentum may be losing some steam in the coming months,” Nomura economists wrote in a statement after the release of PMI data.

The resumption of new coronavirus cases in Beijing and in some surrounding cities caused another blow to the domestic services sector, with renewed limits on social activities that slowed the pace of recovery. This was evident from the almost 69% drop in tourism revenue during the three days of the Dragon Boat Festival which officially ended on Saturday.

“The Dragon Boat Festival holiday data suggests that there was no clear recovery in the tourism sector between late April and late June,” added economists Nomura.

Another batch of factory data will be released Wednesday by Caixin and IHS Markit. This private survey presents a wider mix of small and medium-sized businesses. In comparison, the official PMI survey typically polls a large percentage of large corporations and state-owned companies.

– CNBC’s Evelyn Cheng contributed to this report

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