May Composite PMI Rises to 54.0: Domestic Demand Stabilizes Amid Accelerating New-Form Productivity

Macroeconomic Momentum Sustains Recovery: RatingDog Composite PMI Rises to 54 in May; Tech Sector’s Outperformance Confirms Domestic Demand Stabilization and Effective Implementation of “New Quality Productive Forces” Policies

May’s macroeconomic data for China sent unambiguously positive signals: the RatingDog Composite Purchasing Managers’ Index (PMI) reached 54.0—up 0.9 points from 53.1 in April—and marked its second consecutive monthly rise, significantly surpassing the boom-bust threshold of 50.0. This reading not only confirms that both manufacturing and services are transitioning from “weak recovery” toward “coordinated expansion,” but is also powerfully corroborated at the micro level by the robust performance of A-share technology stocks: on the morning of June 3, the STAR 50 Index surged 4.78% in a single day, while the ChiNext Index soared 3.97%, closing above 4,200 points. Key CPO (co-packaged optics) names—including Zhongji Xunwei, Tianfu Communication, and Xinyi Sheng—all hit new all-time highs. The resonance between macro indicators and micro-level vitality systematically validates two critical judgments: (1) the foundation for domestic demand recovery continues to solidify; and (2) policies supporting “new quality productive forces”—centered on computing power, semiconductors, and optical communications—have entered a phase of tangible, measurable impact.

Composite PMI’s Sustained Uptrend: A “Dual-Engine” Expansion Driven by Manufacturing and Services

The RatingDog Composite PMI is a weighted composite of the Manufacturing PMI and the Services PMI. Its elevated reading of 54.0 carries structural significance. Breaking it down:

• The Manufacturing PMI rose to 52.3 (from 51.7 in April), with both the Production Index and the New Orders Index strengthening in tandem—indicating heightened production intent among enterprises and a broad-based pickup in end-market demand.
• The Services PMI climbed to 55.2 (from 54.0), with both the Business Activity Index and the Business Expectations Index hitting six-month highs. Notably, modern service subsectors—including information technology services, R&D, and design services—led the gains.

This “stable manufacturing base + accelerating services” dynamic signals a pivotal shift in growth drivers—from earlier reliance on infrastructure investment and export momentum—to a dual-track advancement fueled by organic domestic demand and industrial upgrading. Of particular note, the Small Enterprises PMI rebounded to 49.8 (still in contraction territory but up 1.2 points month-on-month), reflecting the gradually cascading impact of targeted SME support policies—including tax cuts, fee reductions, and equipment renewal subsidies—onto the grassroots level, laying essential groundwork for a broader stabilization ahead.

Tech Sector Leads Strongly: “Macro Floor + Micro Vitality” Dual-Engine Logic Materializes

Improving macro data provided the market with a firm bottoming-out floor, while the tech sector’s explosive rally served as the most direct, visible validation of micro-level vitality. On the morning of June 3, the A-share market displayed pronounced “tech bull” characteristics:

• The STAR 50 Index jumped 4.78%, far outpacing the CSI 300 (+1.55%) and the Shanghai Composite (+0.56%).
• The ChiNext Index rose nearly 4% in one day, led across the board by semiconductor equipment, advanced packaging (Changdian Technology and Tongfu Microelectronics both hit daily limits), optical modules (Zhongji Xunwei, Tianfu Communication hitting new highs), and high-speed copper-cable interconnects (Hengtong Optic-Electric hitting a daily limit).

Critically, Lianxun Instruments’ share price breached the RMB 2,000 mark, and Cambridge Industries Group rallied again to its daily limit—not isolated events, but concentrated reflections of accelerated global AI compute “arms racing” and corresponding breakthroughs and order fulfillment along China’s domestic supply chain. When the RatingDog Composite PMI reveals strong expansion in services—especially digital technology services—and this dovetails with broadly exceeding earnings forecasts from tech firms and a sharp surge in institutional investor site visits, the narrative of “macro fundamentals sound, micro fundamentals even stronger” rapidly dominates market pricing logic.

“New Quality Productive Forces” Policies Deliver Tangible Results: A Leap in Certainty from Policy Design to Industrial Realization

The deeper driver behind this tech rally lies in the national strategy of “new quality productive forces” rapidly shifting from policy announcement to industrial implementation. Since May:

• The National Data Administration has spearheaded the launch of a nationwide integrated computing-power network;
• The Ministry of Industry and Information Technology (MIIT) explicitly designated CPO (co-packaged optics) as a key focus area for optical communications R&D;
• The Yangtze River Delta and Guangdong-Hong Kong-Macao Greater Bay Area have rolled out targeted subsidies for domestic semiconductor equipment adoption.

Markets have keenly detected a qualitative improvement in policy execution:

• Zhongji Xunwei captured 40% of global 800G optical module shipments in Q1;
• Tianfu Communication’s high-speed optical engine yield exceeded 95%;
• Changdian Technology’s Chiplet packaging yield has reached international top-tier levels.

These micro-level advances align closely with the RatingDog Composite PMI’s “Business Activity Index for High-Tech Services,” which stood at 62.1—confirming that policy resources are being efficiently converted into real production capacity and technological iteration. Unlike past tech rallies driven largely by thematic speculation, today’s upward momentum rests on solid foundations: verifiable orders, scalable capacity, and demonstrable technical progress—making the upward re-rating of valuations fundamentally sustainable.

Divergent Global Backdrop Highlights Relative Strength of Chinese Assets

Cross-border comparisons further underscore the relative attractiveness of Chinese tech assets. On June 3:

• Japan’s Nikkei 225 Index rose 3%, reflecting optimism about AI hardware demand;
• Meanwhile, Indonesia’s benchmark index plunged 4% to 5,950 points—the lowest since April 2025—highlighting emerging markets’ vulnerability amid Fed policy uncertainty.

Against this backdrop, the A-share tech sector’s independent strength stands out as especially valuable: it neither follows U.S. AI-themed stocks nor succumbs to external volatility, but instead draws confidence from the certainty of domestic demand recovery and the autonomy of “new quality productive forces” implementation. This “endogenously driven” rally has markedly improved foreign investors’ risk appetite for Chinese growth equities. Northbound funds have recently posted consecutive net inflows into tech-focused ETFs, and Morgan Stanley’s latest report upgraded China’s semiconductor sector to “Overweight,” citing “policy execution efficiency exceeding expectations and an increasingly steep technology catch-up curve.”

Outlook: Q2 Sequential Improvement Likely; Growth-Stock Valuation Framework Undergoing Restructuring

Two consecutive months of rising RatingDog Composite PMI—coupled with the tech sector’s simultaneous volume-and-price expansion—point clearly to a pivotal inflection: China’s economy is moving decisively from “expectation recovery” to “real-world validation.” Q2 GDP sequential growth is expected to improve markedly over Q1, with sectors tied to “new quality productive forces”—including computing-power infrastructure, semiconductor equipment, advanced packaging, and optical communications—serving as core growth engines.

For capital markets, this represents more than just a sectoral beta play—it marks a fundamental restructuring of growth-stock valuation logic: shifting away from past “story-based valuations” reliant on liquidity easing, toward “earnings-based valuations” anchored in order visibility, technological moats, and the pace of domestic substitution. As additional micro evidence emerges—including high-frequency June construction-start data and publicly disclosed semiconductor equipment tender lists—market confidence in domestic demand resilience and industrial upgrading will deepen further, guiding incremental capital flows continuously toward high-conviction, hard-tech sectors. Ultimately, the sustained repair of macroeconomic momentum provides the most solid epochal footnote to innovation breakthroughs unfolding across the micro landscape.