China manufacturing activity at 5-month high

02-06-2014

China's manufacturing sector recorded its best performance in five months in May, according to a preliminary survey.

The HSBC survey showed that although overall manufacturing growth still contracted slightly, the result was better than forecast.

The HSBC Flash China Manufacturing Purchasing Managers' Index PMI in May was 49.7 – from April's final reading of 48.1. (A reading below 50-points indicates a contraction).

New export orders showed the biggest turnaround, with the index climbing by 3.4 points to 52.7 – a level not seen in more than three years.

"The improvement was broad-based with both new orders and new export orders back in expansionary territory. Disinflationary pressures also eased over the month and output prices increased for the first time since November 2013," said Qu Hongbin, chief economist for China at HSBC.

"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."

China Premier Li Keqiang said earlier this year the government is not concerned if economic growth comes in slightly below the government's 7.5% target.

Hit by unsteady global demand, slowing domestic investment growth and a cooling property market, China's economic growth fell to an 18-month low in the first three months of this year.

Economists polled by Reuters believe growth in the world's second-largest economy will dip to a 24-year-low of 7.3% this year – just ahead of the 7.2% expansion that Premier Li has said is necessary for a robust labour market.

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