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China manufacturing grew more than expected in May, official survey shows

  • Growth in China's manufacturing sector expanded faster than expected in May
  • China's May steel PMI grew at its fastest pace in a year
  • China's official services PMI also grew in May

Growth in China's manufacturing sector expanded faster than expected in May, an official survey showed on Wednesday, indicating a sure and steady picture on fundamentals.

The National Bureau of Statistic's official Purchasing Managers' Index (PMI) came in at 51.2 higher than the 51.0 expected and even with 51.2 in April, Reuters reported.

The rise in manufacturing PMI came as activity in China's steel sector grew at its fastest pace in a year as new orders increased, another survey indicated. China's steel PMI rose to 54.8 in May from 49.1 in April, Reuters reported, citing the China Federation of Logistics and Purchasing.

ANZ's senior China economist Betty Wang said in a note that the bank expects infrastructure investment to take a "big role" in supporting growth in the months ahead.

"Infrastructure investment appears to have decoupled from the current financial deleveraging in our view. This, together with the jump in the steel sector PMI, may indicate a solid outlook for fixed asset investment," Wang wrote.

Strong fixed asset investment will in turn help second quarter growth, which ANZ projects to reach 6.6 percent, higher than the official 6.5 percent target.

Meanwhile, China's official services PMI rose to 54.5 in May from 54.0 in April. The services sector accounted for over half of the Chinese economy last year. A reading above 50 points to growth in the PMIs.

But there are downside risks in the non-manufacturing PMI, warned ANZ.

"The rebound was mainly supported by commercial services. But we think deteriorating sentiment in the financial sector amid regulatory tightening may weigh on overall sentiment in the non-financial sector in the near future," Wang wrote.

Bank of Singapore's Chief Investment Officer, Johan Jooste said the market is now less focused on Chinese data as investors zoom in on the country's clampdown on liquidity and leverage.

"When you look at fundamentals, the game in town is just to keep a steady track, no nasty surprises and this is what what we see this morning. It's more or less in line with what we think and that keeps the market in a sanguine frame," he told CNBC's "Squawk Box".