China Factory Activity Falls in May, but Less Sharply

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China Factory Activity Falls in May, but Less Sharply
Credit: © Reuters.

By Gina Lee

Investing.com –

China’s factory activity shrank in May, but the pace is slower as COVID-19 curbs eased, improving from a 26-month low in April.

The Caixin manufacturing purchasing managers’ index (PMI) was 48.1 in May, which is better than 48 in the forecast prepared by Investing.com and 46 recorded in April 2022. The data is still below the 50-point index mark which separates growth from contraction.

The data is in line with the official manufacturing PMI released on Tuesday which rose to 49.6 from 47.4 in April. Contraction in May was the second-sharpest slump since February, indicating a fragile recovery.

COVID-19-related restrictions such as lockdowns and mass testing in China caused economic damage to businesses. The sub-index for new orders fell for the third consecutive month in May but the pace was slower.

With the easing of lockdowns and the phased reopening of business activities in Shanghai, most sub-indexes under the Caixin PMI fell less sharply.

However, “unlike most other gauges, the employment measure fell further into negative territory in May,” Caixin Insight Group senior economist Wang Zhe said in a statement accompanying the data release as employers were reluctant to hire more staff.

“The negative effects from the latest wave of domestic outbreaks may surpass those of 2020. It's necessary for policymakers to pay attention to employment and logistics,” Wang added.

Even if Beijing striving to support the economy, analysts say the COVID-19 control measures threaten China’s growth target of “around 5.5%” for the year.

“While its recovery from the first wave of COVID in early 2020 was aided by a surge in construction activity, property developers are now struggling to finance existing projects. They won't launch new ones until there has been a marked pick-up in sales,” Capital Economics group chief economist Neil Shearing said in a note.

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