BEIJING (Reuters) – Factory activity in China grew at the fastest pace in nearly two years in May thanks to gains in production and new orders, especially at small businesses, a private sector survey showed on Monday, raising expectations for the second quarter.
The Caixin/S&P Global Manufacturing PMI rose to 51.7 in May from 51.4 the previous month, the highest level since June 2022, and above analysts' expectations of 51.5. The fifty-point mark separates growth from contraction.
To combat weak domestic demand and a years-long real estate crisis, China has boosted investment in infrastructure and pumped money into high-tech manufacturing to support the broader economy this year.
However, the full effects of industrial policy support are yet to be felt by companies and workers.
The upbeat Caixin PMI contrasts with Friday's official PMI survey that showed a surprise decline in manufacturing activity.
Mixed indicators, along with other mixed data, suggest that the economic recovery is facing difficulties in maintaining momentum in the second quarter.
“The key question is whether China’s exports will continue to hold up well in the coming months,” said Zhou Hao, an economist at Guotai Junan International.
“The export orders index fell significantly in the official PMI but remained relatively resilient in the Caixin PMI.”
The Caixin survey is believed to be skewed more towards small, export-oriented companies than the broader official PMI.
According to the Caixin survey, production rose at the fastest pace since June 2022, with companies in the consumer sector recording sharp growth in May.
Production was supported by a rise in new workflows, as strong domestic and global demand supported customer interest in the new products, according to participants.
Thanks to some improved economic indicators and new policy steps in the first quarter, the International Monetary Fund last week raised its forecast for China's economic growth in 2024 to 5% from a previous forecast of 4.6%.
But this is still lower than the International Monetary Fund's previous forecast of 5.2% growth.
Rating agency Moody's (NYSE:) raised its 2024 China growth forecast to 4.5% on Monday from 4.0%, while keeping its 2025 forecast at 4.0%.
China's trade outlook remained volatile due to the weakness of the global economy.
According to Caixin, new export orders grew at a much slower pace in May, retreating from a 41-month high in April.
Some survey respondents said recent trade shows had led to new business, while others pointed to their strategic expansion into foreign markets.
To meet ongoing production requirements, factories have intensified their purchasing activity, with the amount of purchases accelerating at the fastest pace in three years.
Sentiment among producers improved compared to April as they expected improved market demand at home and abroad.
Rising prices for metals, plastics and energy have increased average input costs. The inflation rate in input prices was the highest since last October.
However, employment remained weak, remaining in contractionary territory for the ninth straight month. The rate of job losses slowed, as consumer goods makers reported a slight rise in employment levels.