Manufacturing activity in China contracted in May but at a slower pace, according to an HSBC survey. Chinese companies cut back production and jobs despite the government stimulus injections into the struggling sector. The HSBC-Markit purchasing managers’ index (PMI) was 49.1 points in May, a slightly up tick from the 48.9 figure in April. The index measures China’s factories and workshops and the 50-point mark on the index separates contraction from growth. This month signals the third consecutive period of contraction in the country’s manufacturing output.
The production sub-index fell for the first time in 2015, which underlines the struggling Chinese industrial sector. “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, as companies tempered production plans in line with weaker demand conditions,” said Markit economist Annabel Fiddes. The government of China has said it has “plenty of scope” to execute further stimulus as the country’s manufacturing sector deteriorates. However, despite the recent stimulus by the Chinese government, the HSBC-Markit index only ticked up 0.20 points from April to May.
Part of the slight uptick in the index could be attributed to the government’s policy easing, according to Capital Economics researcher Julian Evans-Pritchard. “The rebound in domestic demand hinted at by the PMI’s breakdown does suggest that recent policy efforts may finally be having their intended effect of shoring up short-run economic activity,” he said. Part of the policy easing includes three interest rate cuts since November and reducing the cash reserve requirements for banks. The decline in industrial output coincides with a slowdown in gross domestic product (GDP) growth in the world second largest economy. China’s GDP grew at 7.4 per cent last year, the slowest pace since 1990. Last quarter, GDP grew at 7.0 per cent, the weakest quarterly growth in six years.