China's manufacturing PMI (purchasing managers' index) metric of activity in May shows that the sector is moving closer to stabilisation but the current reading remained below the level of 50, which signalls contraction.
"Tentative signs of stabilization are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs," said Qu Hongbin, HSBC's chief economist for China. "We think more policy easing is needed to put a floor under growth in the coming months."
In April the government said it would release some infrastructure spending for railways and offer more tax breaks. Recently it said it would make funds available for export tax rebates.
Flash China Manufacturing PMI at 49.7 in May (48.1 in April) is at a five-month high while the Flash China Manufacturing Output Index at 50.3 in May (47.9 in April) is at a four-month high.
The HSBC Flash China Manufacturing PMI which is a poll of 420 firms, is published on a monthly basis ahead of final PMI data, making the HSBC PMI the earliest available indicator of manufacturing sector operating conditions in China. The estimate is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate indication of the final PMI data. May final PMI data will be released on 3 June 2014.
Qu Hongbin added that "the employment index fell further to 47.3, which implies that this month's uptick in sentiment has not yet filtered through to the labour market. Some tentative signs of stabilisation are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs. But downside risks to growth remain, particularly as the property market continues to cool. We think more policy easing is needed to put a floor under growth in the coming months.”
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