China Manufacturing Sector Recovers In May

China’s manufacturing activity expanded for the first time in three months in May as strong new orders boosted production, survey results from S&P Global revealed on Thursday.

The Caixin manufacturing Purchasing Managers’ Index picked up to 50.9 in May from 49.5 in April. The reading was forecast to remain unchanged at 49.5.

The latest reading was above the neutral 50.0 level, suggesting the first improvement in the health of the manufacturing sector since February. Moreover, this was stronger than the post-pandemic average.

However, today’s survey data was in stark contrast to the finding of the official PMI report released by the National Bureau of Statistics on Wednesday. The official manufacturing PMI declined to 48.8 in May from 49.2 in the previous month.

The official non-manufacturing PMI came in at 54.5 in May. Although the score was above 50.0, it was down from 56.4 in April.

The overall improvement in manufacturing activity was driven by robust production, the private survey showed. The rate of growth picked up to the fastest since June 2022.

Driven by firmer demand conditions, factory new orders increased at the second fastest pace in more than two years, S&P survey showed. New export business increased at a slightly faster pace.

Higher new orders prompted firms to increase their buying activity in May. Meanwhile, stocks of finished goods fell fractionally.

Due to improved material availability as well as increased capacity at suppliers, average delivery times for inputs shortened again in May.

On price front, the survey showed that input costs dropped for the second consecutive month, thanks to the improvement in supply chains. At the same time, companies cut their selling prices amid stiff competition.

However, business confidence regarding the 12-month outlook for production slipped to a seven-month low as manufacturers were concerned about lingering economic uncertainty.

Consequently, firms maintained a cautious approach to staff hiring. Job creation dropped at the quickest pace since February 2020.

“In general, April’s official economic data fell short of expectations, raising doubts about the sustainability of the post-Covid recovery,” Wang Zhe, a senior economist at Caixin Insight Group said.

The economist said the current economic growth lacks internal drive and that market entities lack sufficient confidence, highlighting the importance of expanding and restoring demand.

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