China's manufacturing PM1 (purchasing managers'
index) was published Tuesday and reflecting activity in the private sector,
shows a dip in output for the fourth straight month. An official PMI report on
manufacturing mainly reflecting activity of state-owned firms, shows a slight
rise in output while a report on services issued today signalls a robust
A Markit report that was prepared for HSBC Plc, the global
bank, shows that latest data signalled operating conditions in China’s
manufacturing sector deteriorated only marginally in May. Output contracted at a
fractional pace, while new orders stabilised after a three-month sequence of
decline. Subdued client demand was linked by panellists to relatively weak
market conditions. In contrast, new export orders rose at the quickest pace in
over four years, with a number of companies citing new client wins. Job shedding
meanwhile persisted, with the latest reduction of workforce numbers the
strongest in three months.
After adjusting for seasonal factors,
the HSBC PMI
- - a composite
indicator designed to provide a single-figure snapshot of operating conditions
in the manufacturing economy - - posted at 49.4 in May, down slightly from the
earlier flash reading of 49.7, and up from 48.1 in April. The reading signalled
only a marginal deterioration in business conditions. The health of the sector,
however, has now deteriorated in each month of 2014 so far.
Manufacturers in China reported a fourth successive
monthly fall in output during May. That said, the rate of contraction was only
fractional. According to panellists, uncertain economic conditions led some
firms to lower production over the month. Total new business was unchanged in
May, following a three-month sequence of reduction. Data suggested that muted
domestic demand hindered overall new work wins, as new export orders rose at the
fastest rate since April 2010.
Improving demand conditions led to an increased amount of
purchasing activity in May, albeit only marginal. Nonetheless, it was the first
time that input buying had increased in four months. Stocks of purchases were
relatively unchanged in May, ending a three-month sequence of depletion.
Inventories of finished goods fell for the first time in 2014 so far, though
only slightly, as some companies increased their use of current stocks to meet
new incoming orders.
Employment at manufacturing companies declined again in
May, as has been the case since November 2013. The rate of reduction was marked
overall, and partly driven by company down-sizing policies. Despite lower
staffing levels, backlogs of work also declined.
Average cost burdens fell again in May, though the rate of
deflation was the weakest in the current five-month sequence. In contrast,
output charges increased for the first time in 2014 so far, with some firms
commenting that improved demand conditions boosted pricing power.
Hongbin Qu, chief economist, China & co-head of
Asian Economic Research at HSBC said: "The final HSBC China
Manufacturing PMI rebounded to 49.4 in May, up from 48.1 in April, and revised
down slightly from the earlier flash reading of 49.7. New orders stabilized,
while new export orders recorded an impressive expansion of 53.2. But growth
momentum looked weaker than suggested in the flash reading as the stocks of
finished goods index was revised up to 49.8 from 48.8 in the flash reading. The
final PMI reading for May confirmed that the economy is stabilizing, but it is
too early to say that it has bottomed out, particularly in light of a weaker
property sector. The lack of a sustainable growth momentum warrants stronger
policy support. We expect both monetary and fiscal policy to be loosened
gradually over the coming months."
Reuters reports that China's services sector grew
at its fastest pace in six months in May as new orders rebounded.
The official non-manufacturing PMI climbed to 55.5 from April's 54.8, the
National Bureau of Statistics said. That is well above the 50-point level that
separates an expansion from a contraction in activity.
New orders recovered to an eight-month high of 52.7, compared to April's 50.8.
Business expectations also held their ground at a solid 60.7, compared to
Official data on Sunday showed China's manufacturing industry grew at its
fastest pace in five months in May due to rising new orders, as a PMI for the
sector touched a high of 50.8 in May.