An initial gauge of China's factory activity showed further
sluggishness in May, though economists said government efforts to
reinvigorate the economy appear to be cushioning the downward
slide.
The HSBC preliminary manufacturing Purchasing Managers Index
rose slightly to 49.1 for May, from a final reading of 48.9 in
April, HSBC Holdings PLC said Thursday. The level remains below the
50 threshold that separates expansion from contraction.
More ominously, the subindex measuring factory output was its
weakest in 13 months. Readings for new orders, new export orders,
employment and inventories also looked anemic.
The May results point to a further deterioration in operating
conditions, said Annabel Fiddes, economist at Markit Economics,
which compiles the index with HSBC. "Softer client demand, both at
home and abroad, along with further job cuts indicate that the
sector may find it difficult to expand, at least in the near term,"
she said.
In the first quarter, economic growth was 7% from a year
earlier, the worst performance in six years. China's policy makers
have been trying an array of measures to keep growth from slipping
too quickly.
Beijing has cut interest rates three times since November and
allowed banks to lend out more of their deposits by cutting their
reserve requirements. Authorities have also offered tax breaks, cut
red tape, made targeted infrastructure spending, and instructed
banks to lend to local government-backed companies— a
reversal of policies put in place last year to head off concerns
over potential repayment problems.
These support measures appear to be cushioning a drop in prices
as economic growth slows, economists said. "There is less downward
pressure on prices," said Nomura economist Zhao Yang. Still, on the
downside, he said, "There is still destocking going on and exports
are weak."
The preliminary PMI figure, also called the HSBC Flash China
PMI, is based on 85% to 90% of total responses to HSBC's survey
each month, and is issued about one week before the final PMI
reading.
Liyan Qi
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