Given regional history, China's transition to exporting more capital goods shouldn't be unexpected. More unusual is that 1) this transition hasn't been accompanied by slower overall export growth, and 2) has occurred at the same time as a sharp slowing of imports. Chart pack attached.

Overall trade trends – strong exports, weak imports, and a big trade surplus – remain in place. But the Trump tariffs are causing big shifts in the structure of exports. Direct shipments to the US have fallen 40% this year, and excluding the pandemic, haven't been this low since 2013.

CPI was surprisingly firm in May, with core continuing to show a reversal from the deflation of 2024. Overall, however, nominal indicators remain very weak. Leads for core have started to deteriorated again, and PPI deflation accelerated in May. The GDP deflator will be negative once again in Q2.

The manufacturing PMI did improve in May, lifted by a bounce in export orders. But there's no sign of a turnaround in the underlying economy, with the construction PMI weak, output prices softening, and business confidence remaining poor.

Official industrial earnings show profitability deteriorating again. A rebound would be first seen in rising prices and improving corporate sentiment, neither of which is yet visible. The weakness is concentrated in heavy industry, but profitability in downstream sectors is only flat-lining.

Headline YoY data are still benefiting from the Q4 pick-up, meaning another 5% growth quarter is likely. But sequentially, growth is slowing again, with no sign of any turnaround in construction that might put a sustainable floor under the overall economy.

After a clear improvement from September, property price deflation since December has settled at an annualised pace of around -1.5%. Sluggish mortgage lending isn't pointing to a further recovery from here. On these official data, average prices are now down 6% from the peak in 2021.

Today's monetary data continue to suggest that the economy has bottomed, but don't point to a big recovery. Non-state and mortgage lending have stopped deteriorating, but don't show signs of the sort of recovery that would lift economic activity.

After the deflation of much of 2024, core sequential inflation has now been positive for six months. But it is now still only +0.2% annualised, and doesn't look to be going higher. Indicators for PPI suggest even more deflation ahead, with the one exception being the decline in the USD.