China’s factory activity swings to surprise growth in May – Caixin PMI

BEIJING, June 1 (Reuters) – China’s factory activity unexpectedly swung to growth in May from a slowdown, a private sector survey showed on Thursday, driven by improved output and demand, helping struggling companies that have been hit by falling profits.

The Caixin/S&P Global Manufacturing Purchasing Managers̵[ads1]7; Index (PMI) rose to 50.9 in May from 49.5 in April, above the 50-point index that separates growth from contraction.

The reading beat expectations of 49.5 in a Reuters poll, a stark contrast to deeper contractionary activity seen in the official PMI released on Wednesday.

China’s recovery from its severe COVID curbs has been fragile and uneven, with economic indicators for April showing imports, factory gate prices and property investment all falling.

“We need more time to see if the improvement will be sustained, but it is good news for the Chinese economy,” Zhou Hao, an economist at Guotai Junan International, said in a note.

“Further policy support is still needed to boost domestic demand, we expect a 10bps MLF rate cut in June,” he added.

The manufacturing sub-indices showed that factory output rose at the fastest clip in 11 months, while new orders including new exports increased in May.

Chinese shares rose after the better-than-expected PMI data, with the mainland’s benchmark CSI 300 and Hong Kong’s Hang Seng up about 0.6% each.

However, business confidence for the coming 12 months fell to a seven-month low due to concerns over the global economic outlook.

Businesses, which struggled with a decline in industrial profits in April, remained cautious about hiring, with the employment sub-index shrinking for a third straight month in May.

Insufficient demand is the main constraint on recovery, and deflation risks are rising in the world’s second-largest economy, analysts say.

The price targets for input and output continued to decline in May.

“Current economic growth lacks internal drive and market units lack sufficient confidence, underscoring the importance of expanding and restoring demand,” said Wang Zhe, senior economist at Caixin Insight Group.

Some economists expect further easing of monetary policy.

“The central bank is likely to cut the reserve requirement ratio (RRR) by 25bps to maintain financial stability, in our view,” ANZ said in a research note on Wednesday. “The likelihood of front-loading the rate cut is also increasing.”

The Caixin PMI is believed to focus on more export-oriented and small businesses in coastal regions and is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.

Reporting by Liangping Gao, Joe Cash and Ryan Woo; Editing by Sam Holmes and Simon Cameron-Moore

Our standards: Thomson Reuters Trust Principles.

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