China's factory activity likely remained flat in May after two months of expansion, as weak domestic demand and cost pressures from the U.S.-Israeli war on Iran weighed on the sector.
The official manufacturing PMI is expected to drop to 50 from 50.3 in April, the threshold between growth and contraction.
Logistics disruptions and price shocks from the Middle East conflict, especially the Strait of Hormuz closure, impacted manufacturers.
April data showed mixed signals: exports surged, but retail sales and industrial production slowed. Producer prices rose sharply, while industrial profits grew at the fastest pace since November 2023.
Weak domestic demand and overcapacity expose the economy to external risks, but AI demand boosted electronics exports.
US-China tariff talks continue. Energy reserves have cushioned the economy, reducing the need for stimulus. However, rising cost pressures may force policymakers to boost domestic demand and support the property market.
