China factory activity hits 5-month high in May

Workers at a handbag factory, China.
Mark Ralston | AFP | Getty Images

Activity in China's vast factory sector increased to a five-month high in May on rising new orders, official data showed on Sunday, reinforcing views that the world's second-largest economy is regaining momentum in the second quarter following Beijing's targeted measures to bolster growth.

The official Purchasing Managers' Index rose to 50.8 in May from April's 50.4, the National Bureau of Statistics said on Sunday, beating market expectations of 50.6.

"The PMI reading continued to improve in May, indicating that a trend of economic stabilization is becoming more evident," Zhang Liqun, a researcher at the Development Research Centre said in the statement accompanying the data.

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A sub-index for new orders, a measure of foreign and domestic demand edged up to 52.3 in May from 51.2 in April.

The PMI survey also showed export orders inched higher to 49.3 in May from 49.1 in April, though the indicator remained below the 50-level threshold that separates growth from contraction.

As one of the first leading indicators gauging economic momentum, the improved reading could bode well for other May data, reinforcing expectations that the economy is starting to regain strength in the second quarter after dipping to a 18-month low in the first three months.

A yuan rebound is on the cards: Nordea
A yuan rebound is on the cards: Nordea

Beijing has unveiled a slew of targeted measures this year to help shore up the economy, including cutting reserve requirement ratios for rural banks, quickening construction of railways and public housing, and tax cuts for smaller enterprises.

China's cabinet announced fresh measures on Friday to help lower funding costs and reduce operating burdens for companies to give more support for the real economy.

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The measures included lowering the reserve requirement for more banks, increasing the scale of re-lending and bond financing to support smaller firms, and a further reduction of administrative fees for businesses.

Chinese leaders have ruled out the possibility of any big fiscal stimulus to spur economic growth as they tolerate a slower growth rate while pushing ahead with structural reforms.

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China's finance ministry had earlier urged their local branches to quicken the pace of budget spending to guarantee the completion of key projects and lift the slowing economy.

A preliminary HSBC/Markit PMI issued late last month showed the factory sector turning in its best performance in five months, although the reading remained below the 50-point level that suggests contraction in manufacturing activities.

The final HSBC PMI is scheduled for release at 01:45 GMT on Tuesday. Unlike its official peer, it favors smaller and private companies.