China manufacturing PMI grows more than expected in May - Caixin

Chinese manufacturing activity grew more than expected in May, a private survey showed on Thursday, contrasting government data from earlier this week that pointed to a sustained decline in Chinas biggest growth engines.

The Caixin Manufacturing Purchasing Managers‘ index (PMI) read 50.9 in May, more than expectations for a reading of 50.3, and the prior month’s figure of 49.5.

The reading surpassed expectations of 49.5 in a Reuters poll, a stark contrast to a deeper contraction activity seen in the official PMI released on Wednesday.

China's recovery from its strict COVID curbs has been fragile and uneven, with economic indicators for April showing imports, factory gate prices and property investment all falling.

“We need more time to see whether the improvement would be sustained, but it is a piece of good news for the Chinese economy,” Zhou Hao, economist at Guotai Junan International, said in a note.

“Further policy support is still required to boost domestic demand, we reckon a 10 bps MLF rate cut in June,” he added.

The manufacturing subindexes showed factory output rose at the fastest clip in 11 months while new orders including new exports expanded in May.

Chinese stocks rose after the better-than-expected PMI data, with the mainland's benchmark CSI 300 and Hong Kong's Hang Seng up roughly 0.6% each.

However, business confidence for the coming 12 months fell to a seven-month low amid concerns over global economic prospects.

Still, analysts at Caixin Insights noted that a broader economic recovery in China remained sluggish, and was still vulnerable to slowing demand and a weak job market.

“Current economic growth lacks internal drive and that market entities lack sufficient confidence, highlighting the importance of expanding and restoring demand… stabilizing employment, increasing income and bolstering expectations through proactive fiscal policy should be prioritized given a dire job market and mounting deflationary pressure,” Wang Zhe, Senior Economist at Caixin Insight Group said in a note.

Zhe also noted that employment in the manufacturing sector remained sluggish, while producers were growing less optimistic about a recovery this year.

While the Chinese government has rolled out a slew of liquidity and stimulus measures to support economic growth, private investment has remained laggard as investors grew uncertain over an economic recovery in the country this year.