China's factory sector expanded more than expected in May, official data showed over the weekend, injecting some optimism into the world's second largest economy after a private survey dealt a blow to economic sentiment in China. (CNS Photo)
China's factory sector expanded more than expected in May, official data showed over the weekend, injecting some optimism into the world's second largest economy after a private survey dealt a blow to economic sentiment in China.
The official purchasing managers' index (PMI) was announced Saturday by the China Federation of Logistics and Purchasing to have picked up to 50.8 in May from 50.6 in April. The May reading was above a market consensus of 50.0.
A reading above 50 indicates expansion in the manufacturing sector, while a reading below 50 points to contraction.
"The moderate jump is mainly driven by rising output and a rebound in input prices during May," Yang Weixiao, a senior macroeconomic analyst with Lianxun Securities Co, told the Global Times Sunday.
The output sub-index rose by 0.7 points in May from the previous month, while the input price sub-index climbed by 5 points month-on-month, according to the federation.
The slightly more cheerful reading came after the HSBC flash PMI reading for May released on May 23 slipped to a seven-month low of 49.6.
"Market fears of a further growth slowdown will be alleviated and we expect a positive market reaction next Monday," Lu Ting, China economist with Bank of America Merrill Lynch in Hong Kong, said in a research note sent to the Global Times over the weekend.
But despite the improvement seen in the PMI reading from April to May, Lu said in the note that it is not really that impressive.
Rising output versus almost unchanged new orders indicates manufacturers have largely been drawing from existing stockpiles whereas they lack confidence about the future business climate, Lianxun Securities' Yang said.
The rebound in input prices is mostly likely to be correlated to a pickup in recovery seen in the US economy that is leading to a spike in global commodity prices, he said, noting that "the stronger-than-expected official PMI reading shows little improvement from inside the economy."
The sub-index measuring employment also saw a slide in May, an indication of sluggish activity in the nation's factory sector.
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