China factory output surges in May but exports subdued - Just Style
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China factory output surges in May but exports subdued

By admin-demo 01 Jun 2020

Chinese manufacturing output in May expanded at the fastest rate since January 2011 – but demand remained subdued as the spread of the coronavirus continued in export markets.

China factory output surges in May but exports subdued

Chinese manufacturing output in May expanded at the fastest rate since January 2011 – but demand remained subdued as the spread of the coronavirus continued in export markets.

The easing of Covid-19 restrictions saw the latest Caixin China General Manufacturing PMI (Purchasing Managers’ Index) rise from 49.4 in April to 50.7 in May. The indicator provides a single-figure snapshot of operating conditions in the manufacturing economy. 

The above 50.0 reading signalled a renewed improvement in overall operating conditions midway through the second quarter, albeit one that was only marginal.

However, total new work declined again in May, largely driven by weaker external demand, as many nations faced strict measures to stop the spread of the pandemic including company closures, leading new export orders to contract at a historically sharp rate.

In response Chinese firms continued to trim their staff numbers and raised their buying activity only slightly. A lack of new work also led to the first reduction in order backlogs since February 2016. 

That said, supplier performance was broadly stable in May after travel restrictions and low supply levels hindered vendor performance in prior months.

The resumption of production led to a renewed increase in buying activity, but the rate of expansion was only marginal. Manufacturers meanwhile took a relatively cautious approach to inventories in May, with both stocks of purchases and finished items falling since the previous month.

Manufacturers also signalled a third successive monthly fall in average input costs, with suppliers cutting prices for raw materials. At the same time, factory gate prices were little-changed from the previous month following a three-month period of discounting.

Business confidence picked up in May, with firms generally optimistic that output will rise over the next year. Positive forecasts were often linked to hopes of a global economic rebound once the pandemic situation improves.

“Stabilising the job market is a top priority on policymakers’ agenda this year,” says Dr Zhengsheng Zhong, senior economist at Caixin Insight Group. “Boosting employment is not an easy task, as the employment subindex in the Caixin manufacturing PMI survey has remained in contractionary territory for five months in a row.”

The Caixin manufacturing PMI focuses on small and medium-sized private manufacturers. In contrast, separate PMI data from China’s National Bureau of Statistics, which covers large and state-owned enterprises, pointed to a slight contraction in manufacturing activity between April and May, with the PMI reading slipping to 50.6 from 50.8.