China's manufacturing sector expands slightly, beating market expectations

Activity in China’s manufacturing sector expanded slightly last month, according to official data, beating market expectations.

The official purchasing managers’ index stood at 50.1 in May, unchanged on the previous month, according to figures released by the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

It was the third month the index has risen after seven months of contraction.

A reading above 50 signals expansion of activity.

The index was expected to fall to 50 in May, according to a median forecast of 31 economists polled by Reuters.

The index provides a snapshot of operating conditions in the manufacturing sector. It is seen as the freshest available data indicating economic performance and is based on survey of 3,000 manufacturers nationwide.

Output rose slightly in May from April, but new orders dropped for the second month in a row. Employment levels improved from April, but are still contracting.

Industrial companies saw profits rise 4.2 per cent in April, a sharp fall from an 11.1 per cent gain the previous month, according to data the bureau released on Friday.

China’s economy grew 6.7 per cent in the first quarter compared with the same period last year.

The central government has been attempting to move away from debt-fuelled economic growth model as President Xi Jinping tries to steer through reforms to the country’s economy.

The Communist Party mouthpiece the People’s Daily last month cited an unidentified “authoritative” figure as saying high debt levels could lead to a financial crisis.

The central bank said on Thursday it would stick to a “generally prudent” monetary policy, which generally means less monetary easing.

China’s central bank plays down expectations of monetary tightening

Banks extended 555.6 billion yuan (HK$661 billion) in new yuan loans, pulling back from a 1.37 trillion yuan lending splurge in March. It was the lowest amount for April since 2009.

The Industrial Bank said in a research note that it expected credit in May to increase to 950 billion yuan, given loan amounts have historically risen across the two months.

China also released its non-manufacturing PMI on Wednesday, a measure of activity in the services sector. The reading was 53.1, down from April’s 53.8.

(SOUTH CHINA MORNING POST)