May factory activity index down slightly

Manufacturing activity in China sustained a steady recovery in May with the rally in domestic demand gathering pace, the National Bureau of Statistics said on Sunday.

Analysts expected the manufacturing sector to continue to pick up over the coming months, but cautioned about the uncertainty over external demand and the pressure on employment.

China’s purchasing managers index for the manufacturing sector came in at 50.6 in May, edging down from 50.8 in April, the NBS said on Sunday.

This marked the third consecutive month for the index to stand above 50, the dividing line between expansion and contraction, after the plunge in February due to the COVID-19 outbreak.

Zhao Qinghe, a senior NBS statistician, said economic recovery gained further footing in May as efforts to coordinate economic development with epidemic control deepened, with 81.2 percent of the surveyed manufacturers reporting the resumption of more than four-fifths of their normal production.

The sub-index of new orders came in at 50.9, up from 50.2 in April, as the improvement in market demand quickened, according to the NBS.

The combination of a slower slide in the prices of manufactured goods and a dropping inventory level, as indicated by sub-index readings, also pointed to recovering market demand, analysts said.

Tang Jianwei, chief researcher at the Financial Research Center of the Bank of Communications, said the pickup in domestic demand — which is set to be reinforced by policy moves to boost consumption and infrastructure investment — will help to sustain the expansion in manufacturing activity over the coming months.

The surveyed manufacturers are optimistic about developments in the near future, as the sub-index of business expectations rose to a five-month high of 57.9, according to the NBS.

But Tang cautioned about the downside risk from shrinking external demand, as great uncertainties remain over the resumption of overseas economic activity.

The sub-index for new export orders remained low at 35.3 last month, indicating a sustained drop in external demand, the bureau reported.

Meanwhile, the employment subindex, which dropped into contraction territory at 49.4, has pointed to rising pressure that could threaten a future recovery in domestic demand, analysts said.

The annual national legislative session that concluded last week decided to uphold support for employment, people’s livelihoods and the stable operation of business as the core of this year’s economic policies, with most of the expanded fiscal expenditure to be directed into those areas.

“With the government bailouts to be allocated swiftly, businesses and households could get through the current hardship caused by suppressed external demand, laying the foundation for stronger economic recovery in the second half of the year,” said Shao Yu, chief economist at Orient Securities.

The PMI for the non-manufacturing sector came in at 53.6, versus 53.2 in April, indicating a quicker pace of recovery in the services and construction sectors, the bureau reported.

The composite PMI, covering the manufacturing and non-manufacturing sectors, remained unchanged compared to April at 53.4.