China’s purchasing managers’ indices for April indicate that the supply shock stemming from the Iran war pushed price pressures higher, while manufacturing output continued to accelerate, a note from Capital Economics writes. The expansion in industrial activity appears to have been driven largely by exports, with survey data pointing to ongoing weakness in domestic demand, particularly in the construction sector.

The official manufacturing PMI edged down slightly from 50.4 in March to 50.3 in April. By contrast, the RatingDog manufacturing PMI rose from 50.8 to 52.2. Taking an average of the two measures to gauge broader industrial conditions suggests the headline index increased from 50.6 to 51.3, marking its strongest level since the initial reopening from Covid-19 in early 2023.

The underlying components indicate a further build-up in price pressures. The average input price index rose to a four-year high of 60.6. While firms appear to have absorbed part of these higher costs through margins, output prices also increased, with the relevant index rising from 53.8 to 54.3. On the surface, this points to month-on-month producer price inflation remaining broadly unchanged in April. However, as diffusion indices capture the breadth rather than the scale of price changes, they may understate the impact of sharp movements in a narrower range of goods.

The rise in import costs linked to the Iran war has so far had limited impact on factory activity. The average output index climbed to a 17-month high of 52.7, while the new orders index reached a 25-month high of 52.0. External demand provided the main source of support, with new export orders increasing at their fastest pace since early 2024. Strong global demand for memory chips and green technology products is likely to have been a key driver.

By contrast, indicators of domestic demand were more subdued. The two services PMIs diverged, but their average remained unchanged at 51.1, broadly in line with the past 12-month average. Official commentary highlighted robust growth in railway transport and telecommunications, while retail and consumer-facing services continued to face pressure. More notably, the official construction PMI fell to 49.4, its lowest level outside the initial Covid-19 lockdown period.

Despite these mixed signals, the average of the composite PMIs rose from 51.0 to 51.6. Although this remains below the 21-month high of 52.4 recorded in February, it is slightly above the Q1 average of 51.4. Overall, the data suggest that economic momentum picked up at the start of Q2, driven primarily by exports, while the downturn in construction continued to weigh on domestic demand. Encouragingly, the surveys also point to a modest recovery in hiring in April, which may help to stabilise labour market conditions following signs of softening at the end of Q1.