Caixin
May 31, 2017 08:22 PM
ECONOMY

China’s Manufacturing Growth Stalls as Slowdown Persists

Workers weld mining equipment in Luoyang, Henan province, on Sept. 8, 2015. Photo: Visual China
Workers weld mining equipment in Luoyang, Henan province, on Sept. 8, 2015. Photo: Visual China

(Beijing) — China’s manufacturing activity remained flat in May, official data showed Wednesday, in yet another sign that expansion is slowing in the world’s second-largest economy.

The official manufacturing Purchasing Managers’ Index (PMI) came in at 51.2 in May, the same as that in April — and the lowest figure for six months. Still, that was better than the median forecast of 51.0 in a Bloomberg poll of economists.

The breakeven point is 50: figures above indicate expansion, while those below signal contraction. The May reading marked the tenth straight month that the official manufacturing PMI stood above 50.

Even so, a breakdown of the headline PMI figure showed downward pressures remain on the Chinese economy.

Output continued to expand this month, but growth moderated for the second straight month, data from the National Bureau Statistics showed. Inventory of input materials continued to shrink in May, while the contraction in stocks of finished goods deepened to a four-month low, according to the figures.

“Downstream demand has been sluggish since (the start of) May and midstream production has continued to cool, indicating economic growth is trending down slowly after rebounding,” Jiang Chao, an analyst with Haitong Securities, said in a note.

“Economic growth may decelerate as demand is likely to fall in the coming months,” Jiang said.

The sub-index of new orders was unchanged in May from 52.3 last month, which was the lowest since September. New export business edged up to 50.7 this month from April’s 50.6.

Still, analysts warned signs of weakening demand were rising, given that input and output prices were dropping.

Input costs contracted in May for the first time since January 2016 while output prices declined for the second consecutive month and at a faster pace than in April, according to the NBS.

The falls were corrections to previous price surges and were also led by weakening gains in international commodity costs, said economists with the Bank of Communications in a report.

“They suggested a turnaround in supply-demand relations with overall demand likely to soften,” they said.

The PMI data followed the NBS’ announcement over the weekend that profits of industrial enterprises increased 14% year-on-year in April, down sharply from 23.8% in March.

The profit growth decline “reflects slower demand/output growth” amid regulatory tightening of irregularities in the financial sector and shadow banking industry, particularly wealth management products issued by commercial lenders, analysts with investment bank China International Capital Corp. said in a note.

“The soft-patch in Q2 economic data was largely driven by rising short-term financial costs and inventory destocking of industrial raw materials,” they said.

China’s gross domestic product rose by 6.9% in the first quarter year-on-year, the second-straight quarterly acceleration and above the government’s full-year target of around 6.5%. A number of economists have expected growth to slow over the rest of the year to levels close to the official goal, as policymakers walk a fine line between curbing financial risks and maintaining expansion.

Concerns over weakening growth hit a high note last week when Moody’s Investors Service downgraded China’s sovereign credit ratings for the first time since 1989, warning that the government’s focus on maintaining growth will increase the country’s debt burden and erode its financial strength.

On a bright note, the country’s services and construction sectors looked robust.

The PMI of the services industry rose to 53.5 this month from 52.6 in April on the back of solid growth in sectors such as retail, railway and aviation transport, and telecommunications. Meanwhile, the construction PMI, although falling 1.2 points from the previous month, remained strong at 60.4 in May on increased investment in infrastructure, according to the NBS.

The independent Caixin China General Manufacturing PMI is slated to be published on Thursday and the Caixin China General Services PMI is to be released on Monday.

Contact reporter Fran Wang (fangwang@caixin.com)


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