China’s expansion continues to slow down
In May, China’s manufacturing activity was flat according to the National Bureau of Statistics, with the manufacturing index almost reaching the breakeven point. The government’s challenge is to support expansion without taking financial risks.
Beijing (AsiaNews/Agencies) – China’s manufacturing activity remained flat in May, data from the National Bureau of Statistics (NBS) showed yesterday, in yet another sign that expansion is slowing in the world’s second-largest economy.
The official manufacturing Purchasing Managers’ Index (PMI) came in at 51.2 in May, the same as in April – and the lowest figure for six months, close to the 50-breakeven point.
Output continued to expand this month, but growth moderated for the second straight month. Inventory of input materials continued to shrink in May, whilst the contraction in stocks of finished goods deepened to a four-month low.
“Downstream demand has been sluggish since (the start of) May and midstream production has continued to cool, indicating economic growth is trending down slowly after rebounding,” said Jiang Chao, an analyst with Haitong Securities. “Economic growth may decelerate as demand is likely to fall in the coming months,” Jiang added.
Analysts warn that signs of weakening demand were rising, given that input and output prices were dropping. Input costs contracted in May for the first time since January 2016 while output prices declined for the second consecutive month and at a faster pace than in April, according to the NBS.
The PMI data followed the NBS’ announcement over the weekend that profits of industrial enterprises increased 14 per cent year-on-year in April, down sharply from 23.8 per cent in March.
“The soft-patch in Q2 economic data was largely driven by rising short-term financial costs and inventory destocking of industrial raw materials,” analysts with investment bank China International Capital Corp. said.
A number of economists expect growth to slow over the rest of the year to levels close to the official goal, as policymakers walk a fine line between curbing financial risks and maintaining expansion.
Last week Moody’s Investors Service downgraded China’s sovereign credit ratings for the first time since 1989, warning that the government’s focus on maintaining growth will increase the country’s debt burden and erode its financial strength.
Caixin Media and Markit Economics manufacturing purchasing managers’ index fell to 49.6, the lowest reading since June 2016.
The private measure – with a smaller sample size – contrasts with the government’s PMI reading. Still the official report suggest that China’s factory recovery was spreading to the smaller and nimbler private sector as price pressures on them abate.
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