China: PMIs suggest a slow recovery – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviewed the latest set of results from the PMIs in China.

Key Quotes

“The private sector Caixin manufacturing PMI unexpectedly expanded in May as it rose 1.3 points to 50.7 from 49.4 in April, outperforming market consensus for another month of contraction... So far, the recovery in the manufacturing gauge from its low of 40.3 in February has been bumpy at best, having fallen back into contraction in April.”

“Over the weekend, China’s official Purchasing Manager’s Index (PMI) slipped 0.2 point to 50.6 in May from 50.8 in April… Although this was the third straight month that the index indicated an expansion (above-50 reading) in manufacturing activities, signs of weakening pace of recovery is of a concern.”

“Within the official manufacturing PMI, the production (53.2 from 53.7 in April) and employment (49.4 from 50.2 in April) sub-indexes weakened while new orders (50.9 from 50.2 in April) and new export orders (35.3 from 33.5 in April) improved in May. Despite the pick-up, new export orders, which is a forward-looking indicator of global demand for Chinese goods, remains deep in contraction. By enterprise type, the manufacturing outlook has improved for the large companies while medium and small sized companies lagged in May.”

“Meanwhile, China’s official non-manufacturing PMI continued to improve, rising to 53.6 in May from 53.2 in April for a more optimistic outlook of services demand in China. It remains to be seen if the divergence with the private sector Caixin services PMI (due 9.45 am on 3 June) will continue in May.”