Survey shows factory activities growing at a steady clip in June

China's manufacturing sector expanded at the fastest pace so far this year in June as economic activity gradually returned to normal in the country, a private survey showed on Wednesday.

The Caixin China General Manufacturing Purchasing Managers' Index rose to 51.2 from 50.7 in May, the highest reading this year, according to a survey released by media group Caixin. An index reading above 50 represents an expansion while one below reflects contraction.

The survey showed that China's manufacturing sector has been in expansion for four consecutive months as domestic demand has substantially improved. The gauge for new orders jumped to 52.1 from 49.7 in May, entering the expansion territory for the first time this year.

The reading of the Caixin manufacturing PMI was in line with the official PMI released by the National Bureau of Statistics on Tuesday which also showed that the country's factory activity expanded at a faster pace in June.

The PMI data indicated that China's economy continues to recover with both supply and demand improving, said Wang Zhe, senior economist at Caixin Insight Group.

"While some cities saw a rebound of COVID-19 cases since mid-June, the overall impact is likely to be limited. Companies are still confident about loosened disease control and prevention measures and the economy will gradually return to normal," Wang said.

But Wang warned about persistent pressure on employment and said that ensuring stability in the job market will continue to be a daunting task for the government.

The sub-index of employment released by Caixin declined to 48.6 from 49.2 in May, which still lingers in the contraction territory, below 50, and points to stronger downward pressure in the job market, economists said.

Lu Ting, chief China economist with Nomura Securities, said in a research note that the Caixin manufacturing PMI surprised the market and suggested some good short-term momentum for a recovery.

"Like the official manufacturing PMI, the improvement in the June Caixin manufacturing PMI was mainly driven by a jump in new export orders," he said.

The faster expansion in the manufacturing sector has prompted Nomura Securities to raise its forecast for China's GDP for the second quarter from 1.2 percent to 2.6 percent on a yearly basis.

Despite the improvement in new export orders, Lu warned that the reading was still below 50, which suggested still-strong headwinds from weakening external demand. The risk of recurrent waves of COVID-19 cases in overseas markets may continue to dim China's export outlook, he said.

Xu Hongcai, deputy director of the economic policy committee of the China Association of Policy Sciences, said that China is likely to maintain the strong recovery momentum in the second half of the year as major indicators for production and consumption point to a steady rebound.

Xu expects the country to achieve GDP growth of about 1 percent to 2 percent this year as favorable government policies will continue to facilitate reform and opening-up.