China’s Factory Outlook Slips in May Amid Slow Recovery

© Bloomberg. An employee wearing a protective mask works on a Lynk & Co. 05 crossover sport utility vehicle (SUV) in the paint shop at the Geely Automobile Holdings Ltd. plant in Ningbo, Zhejiang Province, China, on Tuesday, April 28, 2020. China’s manufacturing purchasing managers’ index (PMI) jumped to 52 in March, from an historic low of 35.7 in February as activity rebounded from disruptions caused by the coronavirus and containment measures. Photographer: Qilai Shen/Bloomberg


(Bloomberg) — A gauge of China’s manufacturing activity slipped in May, underlining the slow pace of recovery from the first quarter slump.

The official manufacturing purchasing managers’ index declined to a worse-than-expected 50.6 from 50.8 a month earlier, according to data released by the National Bureau of Statistics on Sunday. The non-manufacturing gauge rose to 53.6. Readings above 50 indicate improving conditions.

The data indicate that China’s recovery from the pandemic shutdowns risks faltering after an initial rebound supported by pent-up demand. While industrial firms are mostly back at work and output is rising again, a collapse in orders has sent a shock-wave through the sector.

“Global demand is still weak even when lockdowns are relaxed in some major cities around the world,” said Iris Pang, greater China chief economist with ING Bank NV in Hong Kong. “The employment level was in contraction again in May, and that highlights the layoff of factory workers after factories have faced continual withdrawal of export orders.”

The sub-index of new export orders climbed to 35.3, manufacturing employment softened to 49.4, while non-manufacturing employment was at 48.5.

What Bloomberg’s Economists Say

“The Chinese economy should continue to pick up in the coming months. Conditions are on the mend at home. External demand is likely to improve as economies overseas begin to exit lockdowns. That said, the potential for mishaps is high given rising tensions between the U.S. and China.”

Chang Shu, Chief Asia Economist

For the full note click here

The government unveiled its stimulus package for the year at the National People’s Congress meeting which concluded last week, and scrapped a hard growth target in light of the uncertain global economy, while pledging targeted monetary easing and trillions of yuan in extra infrastructure spending.

Domestic factories have brought some workers back to staff production lines after the shutdowns in the first quarter and are increasing production, but many are facing a build up in inventories and uncertain orders. Others have not recovered, meaning bankruptcies and unemployment are expected to rise.

“The current global epidemic situation and the world economic situation are still grim and complex, and foreign market demand continues to shrink,” Zhao Qinghe, an economist with the statistics bureau, said in a statement accompanying the data release. Despite small increases in the manufacturing new export order index and import index this month, they “remain at historically low levels,” he said.

(Updates with Bloomberg economist quote)

©2020 Bloomberg L.P.

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