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Friday, March 29, 2024

China factory activity expands

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BEIJING”•Activity in China’s key factory sector expanded in May, official data showed Wednesday, in a sign of stabilization in the world’s second-largest economy.

Recent indicators have pointed to slowing growth in the Asian economic giant as it grapples with weaker global demand, excess industrial capacity and a burgeoning debt problem.

But the latest purchasing managers’ index, a gauge of factory conditions, came in at 51.2, the National Bureau of Statistics (NBS) said, unchanged from the previous month.

Analysts surveyed by Bloomberg News had expected a reading of 51.  

A figure above 50 indicates growth in the sector, which has long been a major driver of the Chinese economy, while anything below points to contraction.

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An expansion in market supply and demand as well as an acceleration in consumer goods manufacturing contributed to the result, NBS analyst Zhao Qinghe said.

“While Chinese growth may have slowed from earlier this year, it looks to have stabilized at a level that is still solid and consistent with the official 6.5 percent (gross domestic product) target,” said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney.  

“China’s economy is stabilizing ahead of a modest slowdown in the second half,” said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore. “The service PMI was still very strong at 54.5, evidence that the Chinese consumer remains active.”

Small enterprises strengthened to 51, the highest in data stretching back five years, while large companies weakened to 51.2 from 52 Input prices weakened to 49.5 from 51.8 New orders were unchanged at 52.3 while new export orders rose to 50.7 from 50.6 Steel industry PMI climbed to 54.8 from 49.1

“Whether or not growth has steadied in May, the path for the months ahead is down,” Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report. “The official PMI is indicating stability, but most other early gauges point to a further moderation in growth in May. China’s markets have also only recently recovered their footing, following the deleveraging scare.”

Tommy Xie, an economist at OCBC Bank in Singapore, said PMI would probably stay above 50 for the rest of the year as the global economy recovers.

But he warned tighter credit conditions and higher borrowing costs for factories would “inevitably slow growth.”  

China is transitioning from an investment-driven economic model to one more reliant on consumer spending, which has put the brakes on growth in recent years.  

But Beijing hopes that its Belt and Road initiative, an ambitious infrastructure project aimed at reviving ancient trading routes from Asia to Europe and Africa, could provide fresh impetus for economic activity.

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