China's Factory Activity Grows Amid Global Disruptions, Surpassing Expectations

What Happens Next

• →China's resilient factory activity sustains elevated demand for industrial metals, keeping copper and aluminum prices firm and increasing margin pressure on non-Chinese manufacturers reliant on these inputs.
• →Electronics and EV battery manufacturers outside China face rising raw material costs, accelerating nearshoring discussions among firms seeking to reduce exposure to China-linked commodity pricing.
• →Japan's factory output weakness, compounded by higher energy costs from the Iran conflict, widens the bilateral trade gap with China in manufactured intermediate goods over the near term.

Near-term: Industrial metal prices remain elevated through Q2-Q3 as Chinese demand holds steady while Iran-linked energy cost pressures squeeze margins for competing manufacturers in Japan and Southeast Asia. Long-term: Persistent cost-competitiveness advantages in Chinese manufacturing drive gradual reorientation of Asia-Pacific procurement networks, with mid-tier economies increasingly sourcing from China rather than Japan for industrial components.