Factory growth at 8-month high, tight funding hits small firms

China’s vast manufacturing sector grew at the fastest pace in eight months in May, blowing past expectations and easing concerns about an economic slowdown even as risks from trade tensions with the US and a crackdown on debt point to a bumpy ride ahead.

The official Purchasing Managers’ Index (PMI) rose to 51.9 in May, from 51.4 in April, and remained well above the 50-point mark that separates growth from contraction for the 22nd straight month, the National Bureau of Statistics (NBS) data showed Thursday.

Analysts surveyed by Reuters had forecast the reading would dip slightly to 51.3.

Production expanded at the fastest rate in six months in May while growth in new orders rose to an eight-month high, helped by rising commodities prices.

The strong manufacturing sector readings defy concerns about an expected loss of momentum in the world’s secondbiggest economy, as policymakers navigate debt risks and rocky trade relations between China and the US.

“We doubt this strength will be sustained for long given that it appears to mostly reflect a temporary boost to industrial output from the easing of pollution controls rather than a turnaround in underlying demand,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

The latest survey showed that more manufacturers were concerned about tightening in funding over recent months, with 40.1 percent of all firms polled raising the issue in May, according to Zhao Qinghe, an official with the NBS.

“Cost pressure is still one of the major problems facing Chinese manufacturers these days,” said Zhao.

Activity by small firms contracted in May after expanding the previous month while both large and medium-sized firms all posted positive growth.

The index for hi-tech manufacturing rose to 54.8 in May, up from April’s 53.8.