China's factory activities
expanded at a slower pace in May, official data showed on Monday, as
rising raw material costs weighed on industrial production.
The official manufacturing
Purchasing Managers' Index (PMI), a key gauge of manufacturing
activities, came in at 51 in May, edging down from last month's 51.1,
according to the National Bureau of Statistics (NBS).
It was also below a median
forecast of 30 economists polled by Reuters who estimated the PMI would
remain at 51.1. A reading above 50 indicates expansion in activities,
while a reading below reflects contraction.
"The moderation in manufacturing
PMI was mainly led by its new orders and raw materials inventory
sub-indices," Lu Ting, chief China economist at Nomura, told CGTN.
The two indexes dropped to 51.3
and 47.7 respectively in May from 52.0 and 48.3 in April, and more than
offset the rise in the production sub-index to 52.7 from 52.2, Lu noted.
The export order index fell into
contraction territory, standing at 48.3 and 2.1 percentage points lower
than last month. It reflected a decline in foreign trade in the
manufacturing sector, said Zhao Qinghe, a senior NBS statistician.
Lu echoed Zhao, saying that the
significant drop in the new orders sub-index suggested weaker sequential
momentum in the country's export. He expected weaker exports in the
second half of the year.
The purchasing price index for
raw materials was 72.8 percent in April, and the ex-factory price index
sat at 60.6 percent, up 5.9 percentage points and 3.3 percentage points
from April, respectively. Both indexes were the highest in a year.
Prices for commodities such as
coal, steel, iron ore and copper have surged this year, and Beijing has
been increasingly concerned about runaway commodity prices in recent
weeks.
Lu expects the rapid rise in raw
material prices to dent demand soon for two major reasons: higher prices
mean less real demand; surging raw material prices mean higher costs and
squeezed margins for firms in downstream sectors, constraining their
production and causing some supply chain disruptions.
"Despite recovering demand from
the U.S. and Europe, many factories had to turn down new orders to
minimize their profit loss. It was particularly difficult for small
producers as their financing cost is higher than larger ones," Wang Dan,
chief economist at Hang Seng Bank China, told CGTN.
NBS data showed that the
production and operation of small enterprises have contracted in May.
The PMI of small enterprises surveyed narrowed down to 48.8, two
percentage points lower than last month, whereas the PMI of large and
medium-sized enterprises expanded by 0.1 and 0.8 percentage points from
last month, respectively.
"With such rapid price increase
in raw materials, many of them had to halt production or shut down. The
drop in supply may aggravate the inflation pressure that already existed
in the United States," Wang said.
China's non-manufacturing PMI
rebounded slightly to 55.2 in May, 0.3 percentage points higher than the
April figure, according to NBS.
Wang said the services sector
saw stronger recovery in May, lifted by the Labor Day holiday. "The
construction sector, mainly housing, saw particularly strong expansion
with rising new orders and new hires. We expect that housing market will
remain the pillar for domestic demand in 2021."
The rebound is "led mainly by
the construction sector, as the government may speed up its fiscal
spending on infrastructure investment thanks to the rapid accumulation
of fiscal deposits in previous months and warmer weather conditions," Lu
echoed Wang.
Zhao, an NBS statistician, said
the business activity index among transportation, accommodation,
retails, catering and entertainment industries, which were severely
constrained by the COVID-19, has been significantly recovered.
"The sub-index for the services
sector remained elevated in May, despite moderation from April, in line
with the hospitality sector's solid recovery during the Labor Day
holiday in early May," Lu said.
The official May composite PMI
that includes both manufacturing and services activities rose to 54.2
from April's 53.8, showing a steady expansion trend for the overall
production and operation activities of Chinese enterprises.
China's economic growth
quickened at a record pace of 18.3 percent year on year in the first
quarter, driven by stronger demand at home and abroad. But it moderated
in April, as retail sales and industrial output slowed.
Source: CGTN |