China factories scrabble for growth in May, export demand shrinks

Reuters

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Workers carry a big pipe at a construction site for building a new road on the outskirts of Beijing, China, May 13, 2015. Photo: Reuters Workers carry a big pipe at a construction site for building a new road on the outskirts of Beijing, China, May 13, 2015. Photo: Reuters

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Growth in China's giant factory sector edged up to a six-month high in May but export demand continued to shrink, prompting companies to shed workers and keeping alive worries about a protracted economic slowdown, an official survey showed on Monday.
A similar survey on the services sector showed activity cooled to its slowest rate in over five years, reinforcing views that authorities will have to roll out more stimulus in coming months.
The official manufacturing Purchasing Managers' Index (PMI) edged up to 50.2 from April's 50.1, the National Bureau of Statistics (NBS) said on its website, 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.
The non-manufacturing Purchasing Managers' Index (PMI) edged down to 53.2, from April's 53.4, the NBS said.
Growth in China's services companies has been more resilient than at ailing factories, but the sector too has succumbed to the broader economic cooldown in recent months.
However, Zhang Liqun, an analyst at the China Federation of Logistics and Purchasing, argued that a rise in overall new orders pointed to some steadying market demand.
"This shows stabilisation in economic growth," Zhang said.
Still, the muted PMI reports suggested that China's economy is still struggling despite recent interest rate cuts and other policy stimulus, suggesting the government may have to do more to support growth.
A private sector survey which focuses on small and mdeium-sized firms showed activity contracted for the third straight month as export orders shrank at the sharpest rate in nearly two years.
The final HSBC/Markit Purchasing Managers' Index (PMI) stood at 49.2 in May, little changed from a preliminary reading of 49.1, and up a touch from April's 48.9.
China's central bank has cut interest rates three times in six months to lower the real cost of borrowing for companies. Many analysts predict it will lower rates at least once more this year.
Weighed down by a property downturn, factory overcapacity and high levels of local debt, China's economic growth is expected to slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014.
That has fuelled investor speculation that China's central bank, which has cut interest rates three times in six months, will lower rates at least once more this year.
As the first major indicator that is released each month, China's official manufacturing PMI is closely watched by investors for clues about the health of the Chinese economy.

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