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China Factory Activity Decline Slows in May, Data Show

The manufacturing purchasing managers’ index (PMI) increased to 49.6 in May from 47.4 in April, the National Bureau of Statistics (NBS) said on Tuesday

Chinese employees work on the production line
Employees work on the production line during an organised media tour to a factory of Beijing Benz Automotive (BBAC), a joint venture by BAIC Motor and Mercedes-Benz, in Beijing, on February 17, 2022. File photo: Florence Lo, Reuters.


The slowdown in factory activity in China is affecting other big Asian economies, but the decline is believed to have slowed as pandemic curbs in key manufacturing hubs were eased.

The manufacturing purchasing managers’ index (PMI) increased to 49.6 in May from 47.4 in April, the National Bureau of Statistics (NBS) said on Tuesday. The result beat forecasts, but raised concern about growth in the second quarter.

China’s factory slowdown is affecting production lines in neighbouring economies – both Japan and South Korea have reported sharp declines in output.

While the PMI hit a three-month high, it remained below the 50-point mark that separates contraction from growth for the third straight month.

“It shows the impact of Covid-19 outbreaks in May have not fully ended, leaving the economic outlook grim since the second quarter in 2020,” said Pang Ming, chief economist at Huaxing Securities.

Declines in China’s midstream and downstream production were larger than they were upstream and small firms were hit harder than large firms, Pang said.

The sub-index for production rose to 49.7 in May from 44.4 in April while the new orders subindex rose to 48.2 from 42.6.

“This showed manufacturing production and demand have recovered to varying degrees, but the recovery momentum needs to be strengthened,” senior NBS statistician Zhao Qinghe said in a statement accompanying the data release.


ALSO SEE: As China Slows, Economists Train Eyes at Data Fudging – WSJ



Sluggish Consumption, Soft Demand

Though restrictions in the major manufacturing hubs of Shanghai and in the northeast eased in May, analysts said the output resumption was restrained by sluggish domestic consumption and softening global demand.

Sheana Yue, an economist at Capital Economics, said although activity has started to rebound as Covid-19 curbs ease, the recovery is likely to remain tepid.

“Indeed, there continues to be signs of supply chain disruptions in the survey breakdown,” Yue said. “Delivery times lengthened further while firms continued to draw down their inventories of raw materials, although at a less rapid pace than in April.”

That would further hamper exports, which lost momentum this year, casting a shadow over the economic rebound.

Many analysts expect the economy to shrink in the April-June quarter from a year earlier, compared with the first quarter’s 4.8% growth.


Economic Difficulties Worse Than 2020

China’s economy was ravaged by strict restrictions in April as the country grappled with the worst Covid-19 outbreak since 2020, with economic difficulties in some aspects now worse than two years ago.

Profits at China’s industrial firms fell at their fastest pace in two years last month as high raw material prices and supply chain chaos eroded margins.

In line with the weakness in the factory sector, services remained soft. The official non-manufacturing PMI in May rose to 47.8 from 41.9 in April.

As consumers were confined to homes, retail sales in April shrank 11.1% from a year earlier, the biggest contraction since March 2020 with catering services and auto sales particularly hit.

Activity in contact-intensive sectors was still in contraction, pointing to large pressure on the services industry, the PMIs showed.

The employment sub-index in the services sector slipped to 45.3, down 0.5 of a point from April, showing sustained job market pressure. That is likely to raise challenges for the government in a politically sensitive year, which has prioritised job stabilisation.

China’s official composite PMI, which includes both manufacturing and services activity, stood at 48.4, up from 42.7.

With greater urgency to support the pandemic-hit economy, Premier Li Keqiang last week reiterated frontloading of policy support and said China would seek positive year-on-year economic growth in the second quarter.

Beijing has vowed to broaden tax rebates, postpone social security payments and loan repayments and roll out new investment projects to support the economy, though analysts say the government has shown no sign of relaxing its zero-Covid policy.


  • Reuters with additional editing by Jim Pollard





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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.


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