The official manufacturing Purchasing Managers’ Index (PMI) edged up to 50.2 from April’s 50.1 in line with analysts’ forecast for a 50.2 reading. A reading above 50 points indicates growth on a monthly basis, while one below that points to contraction.
China Manufacturing PMI (Seasonally Adjusted): Courtesy of National Bureau of Statistics (NBS) of China
“In view of the sizes of enterprises, the PMI of large-sized enterprises was 50.7 percent, slightly increased 0.1 percentage point month-on-month, continued to stay above the threshold; that of medium-sized enterprises was 50.4 percent, having increased for two consecutive months, and rose above the threshold for the first time in this year; that of small-sized enterprises was 47.9 percent, down by 0.5 percentage points month-on-month, still stayed in the contraction range,” NBS reported.
“The muted reports reinforced the view that authorities would have to roll out more stimulus in coming months, despite having cut interest rates three times in six months,” Reuters reports.
“China’s economy still faces strong headwinds,” economists at ANZ Bank said in a note to clients.
“If capital outflow continues at the pace of the first quarter, we expect the People’s Bank of China to cut the reserve requirement ratio by another 100 basis points, in addition to a further interest rate cut of at least 25 basis points.“
Zhang Liqun, an analyst at the China Federation of Logistics and Purchasing argued that a rise in overall new orders in factories pointed to some steadying in market demand. “This shows stabilization in economic growth,” he said.
“Five months into 2015, the economy sees little sign of a pickup,” HSBC said in a note on Monday. “We forecast more aggressive policy easing, including a 50-basis-point reserve ratio cut in the coming weeks.“
Interestingly China’s manufacturing PMI reading has sent risk assets higher today as investor confidence steadily improved.
“With China’s manufacturing sector presenting a mixed picture in May, analysts are betting on even more stimulus from Beijing to spur momentum in the world’s second largest economy (…) The 6.5% one-day plunge in Shanghai last week was mostly erased by last night’s 4.7% advance,” Seeking Alpha noted.
“After a shaky start to the year, which saw the PMI reading slip below the 50 point mark that separates expansion from contraction in January and February, it seems the supportive measures instigated by policymakers in Beijing are slowly starting to have the desired effect. Mainland Chinese equity benchmark indices rallied substantially on the data with the CSI 300 gaining 4.6% overnight while the Shanghai Composite added 4.3% throughout the trading session,” Sucden Financial reported.
China’s economic growth slowed further in the three months to March this year, expanding 7% compared to a year earlier, its slowest pace since the global financial crisis in 2009, BBC reported in April.
Last year, China’s economy, which is the world’s second largest, grew at its slowest pace since 1990. It expanded by 7.4% in 2014, missing its annual growth target of 7.5% for the first time in 15 years. However, despite the slowdown, the Chinese economy was still one of the world’s fastest-growing.
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