Will Manufacturing Reverse China’s Economic Slump?

A worker on the production line at a plant operated by Dongfeng Peugeot-Citroën Automobile in Wuhan, China Photographer: Tomohiro Ohsumi/Bloomberg

Amid a lot of recent gloom, finally some decent news about the Chinese economy: A manufacturing index released today came in above expectations, suggesting China’s recent lackluster growth may have turned the corner.

A gauge of Chinese companies’ purchasing managers by HSBC and Markit Economics rose to a five-month high in May, with a preliminary reading of 49.7, higher than the 48.3 estimate in a survey of analysts by Bloomberg News and up significantly from April’s final reading of 48.1. Today’s survey, the so-called flash PMI, gathers data from 85 percent to 90 percent of companies polled; the final reading will be released on June 3.

“Some tentative signs of stabilization are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs,” Hongbin Qu, chief China economist and co-head of Asian economic research at HSBC, said in a May 22 press release.

A deeper look into the numbers shows a recovery in output and new orders, as well as overseas purchases. All three measures came in above 50, and so indicate expansion. The bad news: Employment weakened from a month earlier, suggesting factory managers are worried about the still-cooling economy and its impact on business.

China economists are mixed on how to read the latest data. “Given the volatile nature of monthly PMI readings and pervasive signs of weakness (in particular in the property sector), it would be premature to claim the economy has bottomed out,” Shuang Ding, Serena Wang, and Minggao Shen, economists at Citigroup in Hong Kong, wrote in a May 22 note.

“There is now increasing evidence that global demand conditions are improving,” wrote Louis Kuijs and Tiffany Qiu, economists at Royal Bank of Scotland in Hong Kong, in a bullish May 22 note. “China’s growth should pick up in the coming months.” RBS is predicting full-year growth will be 7.7 percent, higher than most analysts’ estimates and beating China’s own target of about 7.5 percent.

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