China’s May PMI sharply lower, causing economic slowdown concerns

China’s Purchasing Managers Index (PMI), a readout of the country’s manufacturing activity, ended five consecutive months of growth in May and retreated to 50.4 percent from 53.3 percent in April, the China Federation of Logistics and Purchasing (CFLP) said Friday.

The figure in May showed China’s economy decelerated but the growth trend remained unchanged, as the reading still stood above 50 percent that demarcates expansion from contraction, the CFLP said in a statement.

The CFLP measures PMI for the manufacturing sector based on surveys of 820 sample companies in 31 industries nationwide.

A private index produced by HSBC and Markit showed China’s manufacturing PMI dropped to 48.4 from 49.3 in April – its seventh straight month below 50 – with the employment sub-index falling to 48.1, its lowest level since March, 2009.

“The short-term moderation of economic growth at present does not mean the Chinese economy is entering a new recession stage,” the statement said.

From November to April, the PMI saw steady increases from 49 percent to 50.3 percent, 50.5 percent, 51 percent, 53.1 percent and 53.3 percent.

The May figure was below market estimates and raised concerns over slower economic growth, but the possibility of a hard landing can be ruled out, as the government has started to implement supportive measures, according to a commentary by ANZ Greater China.

The world’s second-largest economy is likely to further lose steam as the sub-index for new orders slumped, pointing to even weaker future factory activity, according to Zhang Liqun, a researcher with the Development Research Center of the State Council.

The sub-index for new orders dipped below 50 percent in May, down 4.7 percentage points to 49.8 percent, indicating shrinking demand in the manufacturing sector, the CFLP data show.

However, Zhang noted that the economic downturn will be mitigated by government efforts to maintain growth, especially policies aimed at stabilizing investment.

China’s economy grew 8.1 percent in the first quarter of 2012 year on year, nearly hitting a three-year low over diminishing export orders and a flagging property market.

The central government pledged last month to pay more attention to stabilizing economic growth, warning that the economy faces “increasing downward pressure.”

In the latest moves to shore up investment and growth, a series of policies were announced last month to open the channels to enable private investment to flow into state-dominated sectors, and a plan was adopted on Wednesday by the State Council to boost the development of seven strategic emerging industries.

Peng Wensheng, chief economist with the China International Capital Corporation Limited, Saturday told Shanghai Securities Journal that the central bank is highly likely to lower interest rates soon, and may further cut banks’ reserve requirement ratio as many as three times within the year, in a bid to stabilize real economy.

Cai Jin, CFLP vice chairman, said the economy is expected to bottom out in May and then pick up on government support to achieve annual growth of 8.2 to 8.3 percent this year.

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