China factory activity contracts for first time in three months
by AFP Staff Writers
Beijing (AFP) May 31, 2024

Factory activity in China shrank for the first time in three months in May, data showed Friday, a setback for Beijing as the sector is seen as a key driver of a fragile economic recovery owing to sluggish consumer spending.

The manufacturing purchasing manager's index (PMI) -- a key measure of factory output -- dipped to 49.5 last month, from April's 50.4, according to the National Bureau of Statistics (NBS).

The reading was also short of the 50.5 forecast in a Bloomberg survey. A figure below 50 indicates a contraction in activity, while anything above points to expansion.

The last time the manufacturing PMI came in below 50 was in February.

NBS statistician Zhao Qinghe said manufacturing activity had been affected by "insufficient effective demand".

China's manufacturing sector has been an important pillar of a nascent recovery in the world's number two economy, with the country's army of consumers still cautious about spending owing to a debilitating debt crisis in the vast property sector.

And while authorities have unveiled a raft of measures to support developers and the real estate industry, analysts said more work was needed to revive consumer spending.

"China cannot depend only on exports to drive its economy," Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note.

"The fiscal policy needs to become more proactive to boost domestic demand," he said, adding: "The change in policy stance in the property sector is one step in the right direction, but its impact on the economy is likely to be gradual".

Meanwhile, Raymond Yeung, chief economist for Greater China at ANZ Banking Group, warned trade frictions -- Beijing is facing fresh rows with the United States and Europe -- would cause further headaches for policymakers.

"The manufacturing-driven recovery remains vulnerable," he said. "In the next few months, rising trade protectionism will be a major headwind."

The latest reading comes after the International Monetary Fund this week lifted its forecast for China's 2024 economic growth from 4.6 percent to five percent.

It cited Beijing's recent housing market support proposals as among the reasons for its decision, but warned that current industrial policy risks a "misallocation" of resources that could damage trade.

China's non-manufacturing PMI -- which takes the services sector into account -- came in at 51.1, which was down from 51.2 in April below expectations.

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