Two surveys suggest China's manufacturing sector improved or at least stabilized in May compared with the previous month, providing some respite following signs of a slowdown in the economy's recovery.
China Beige Book, a US data provider, said its surveys show manufacturing output increased notably in May from April, as did domestic and foreign orders. Goldman Sachs Group Inc. also cited a surge in the emerging industries purchasing managers index.
It is still too late to put a nail in the coffin of the post-Covid zero recovery, China Beige Book said in a statement. Although manufacturing activity remained elusive, soft demand from Western economies remains a major hurdle. The value of Chinese manufacturers' revenue and profit margins also rose in May from the previous month, the company said. The survey by China Beige Book was based on a survey of about 1,000 Chinese firms conducted between May 18 and May 25.
Economists are closely scrutinizing Chinese economic releases after April's data widely missed forecasts, leading to several investment banks to downgrade their projections for GDP growth this year closer to the government's official goal of about 5%. Investors have been increasingly bearish on Chinese stocks, with the Hang Seng China Enterprises Index falling about 20 percent from its peak on Jan. 27.
Robin Xing, Morgan Stanley's chief China economist, remained optimistic about China's growth trajectory for the year despite the softer data last month.
I would see April data weakness as a hiccup, he said in an interview with Bloomberg TV, adding that the strength in services spending limits any need for additional stimulus. As we have witnessed in other Asian economies who didn t use paychecks or fiscal transfers to jump start the recovery, the recovery takes time because you need the service sector to recreate jobs, he said.
China s emerging industries PMI, which measures month-on-month changes in activity in sectors such as renewable energy, advanced manufacturing and biotech, showed an uptick in May compared to the previous month after seasonal adjustments, Goldman Sachs's China economist Hui Shan said in a note.
The EPMI is widely seen as a leading indicator of China's official PMI and the data suggest a tentative sign that manufacturing activity may begin to stabilize, Hui said.
She expects the official PMI, which is set to be released on Wednesday, to increase from 49.2 in April to 49.8 in May. The consensus of economists is for a reading of 49.5. Any reading below 50 indicates a contraction in activity from the previous month.
The housing market is still a concern, with the Beige Book survey finding weakening in the sector.
Construction is still struggling, said Shehzad Qazi, the managing director of the survey company. The property market's recovery is still incredibly uneven. The surge in price growth was a sign of a slowdown in sales. The recovery in services spending, such as dining out and travel, has been seen by official data. The tighter job market would lead to a tighter job market, which would help improve household confidence.
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