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China Factory Activity Poised To Surprise Growth In May – Caixin PMI

China Factory Activity Poised To Surprise Growth In May – Caixin PMI

BEIJING (Reuters) – China’s factory activity unexpectedly swung in growth in May from a decline, a survey of the private sector showed on Thursday, boosted by improving output and demand, helping struggling companies hit by falling profits.

The Caixin/S&P Global manufacturing Purchasing Managers’ Index (PMI) rose to 50.9 in May from 49.5 in April, above the index’s 50-point mark that separates growth from contraction.

The reading beat expectations of 49.5 in a Reuters poll, in stark contrast to the deeper contractionary activity seen in the official PMI released on Wednesday.

China’s recovery from its tough COVID restrictions has been fragile and uneven, with April economic indicators showing lower imports, factory gate prices and real estate investment.

“We need more time to see if the improvement will continue, but it is good news for the Chinese economy,” Zhou Hao, an economist at Guotai Junan International, said in a note.

He added, “More political support is still needed to boost domestic demand, and we are calculating a 10 basis point cut in the MLF interest rate in June.”

Manufacturing sub-indices showed factory output rose at the fastest clip in 11 months while new orders including new exports expanded in May.

Chinese stocks rose after better-than-expected PMI data, with the mainland’s CSI 300 and Hong Kong’s Hang Seng rising around 0.6% each.

However, business confidence over the next 12 months fell to its lowest level in seven months amid concerns about the global economic outlook.

Businesses, grappling with a slump in industrial profits in April, remained cautious about hiring, with the employment sub-index contracting for the third consecutive month in May.

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Analysts say insufficient demand is the main impediment to recovery, and deflationary risks are rising in the world’s second-largest economy.

Input and output price measures continued to decline in May.

“The current economic growth lacks internal motivation and market entities lack sufficient confidence, which highlights the importance of expanding and restoring demand,” said Wang Zhi, chief economist of Caixin Insight Group.

Some economists expect further easing of monetary policy.

“The central bank is likely to cut the reserve requirement ratio by 25 basis points to maintain financial stability, in our view,” ANZ said in a research note on Wednesday. “The potential for a front load of lower interest rates is also rising.”

The Caixin PMI is believed to focus more on export-oriented and small businesses in coastal regions and is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.

Additional reporting by Liangping Gao, Joe Cash and Ryan Wu; Editing by Sam Holmes and Simon Cameron Moore

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