China’s manufacturing sector hit a standstill in May, with the official Purchasing Managers’ Index (PMI) from the National Bureau of Statistics (NBS) falling to 50.0 from April’s 50.4 reading. The figure, released on May 31, 2024, marks the boundary between expansion and contraction, indicating no growth in factory activity.
The NBS Non-Manufacturing PMI, which measures activity in the services and construction sectors, edged up slightly to 50.1 from 50.0 in April, narrowly staying in expansionary territory. Together, the data points to an economy struggling to gain momentum despite ongoing policy support from Beijing.
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Stagnation in Manufacturing
The manufacturing PMI’s drop to the 50.0 threshold was worse than the 50.3 reading economists had forecast in a Reuters poll. A reading above 50 signals expansion, while below 50 indicates contraction. The 50.0 figure suggests factory output neither grew nor shrank, reflecting weak domestic demand and persistent headwinds in the property sector.
Sub-indices within the report painted a mixed picture. The production sub-index remained in expansionary territory, but the new orders index fell, signaling that demand from both domestic and international markets is softening. Export orders also declined, highlighting ongoing challenges for Chinese exporters amid geopolitical tensions and a slowdown in global trade.
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Services and Construction Hold Steady
The modest uptick in the Non-Manufacturing PMI to 50.1 was driven largely by the services sector, which saw a slight improvement in business activity. However, the construction sub-index slipped, reflecting the ongoing drag from the struggling real estate market. While the government has rolled out measures to stabilize the property sector, including easing home-buying restrictions and cutting mortgage rates, the impact has yet to translate into a sustained recovery in construction activity.
The composite PMI, which combines both manufacturing and non-manufacturing data, stood at 50.1, down from 50.4 in April, underscoring the broad-based nature of the economic slowdown.
Market and Policy Implications
The data reinforces expectations that the Chinese government and the People’s Bank of China (PBOC) will need to deploy further stimulus measures to support growth. Analysts at Nomura noted that the PMI figures suggest the economy is “losing steam,” increasing the likelihood of additional monetary easing, including potential cuts to the reserve requirement ratio (RRR) for banks.
Financial markets reacted cautiously to the release. The Shanghai Composite Index edged lower in morning trading, while the offshore Chinese yuan weakened slightly against the US dollar, as investors weighed the implications of a stalling economy.
The NBS data comes ahead of a series of other key economic indicators for May, including trade data and inflation figures, which will provide a more complete picture of the health of the world’s second-largest economy.
