China's manufacturing activity entered a stagnation phase in May after two consecutive months of expansion despite energy instability stemming from the Middle East. The slowdown is attributed to the dual pressures of high oil prices and weak domestic demand.
China's National Bureau of Statistics announced on Friday that the manufacturing Purchasing Managers' Index (PMI) for May came in at 50.0, down 0.3 point from 50.3 the previous month. The figure matched the median forecast of economists polled by Reuters.
The PMI is an economic indicator compiled from surveys of corporate purchasing managers. A reading of 50 indicates stagnation, while readings above 50 signal expansion and those below 50 indicate contraction.
By company size, polarization between large enterprises and small and medium-sized enterprises was pronounced. The PMI for large enterprises stood at 51.1, up 0.9 point from the previous month, while the readings for medium-sized and small enterprises came in at 48.6 and 48.5, down 1.9 points and 1.6 points respectively over the same period, falling below the 50 threshold.
Among the five sub-indexes that make up the manufacturing PMI, only the production index (51.2, down 0.3 point from the previous month) exceeded the threshold. The new orders index (49.9, down 0.7 point), raw material inventory index (48.6, down 0.7 point), employment index (48.6, down 0.2 point), and supplier delivery time index (49.2, down 0.3 point) all remained in contraction territory.
"Production and new orders increased in industries such as pharmaceuticals, railway, shipbuilding, aerospace equipment, and computer, communications and electronic equipment, but both supply and demand contracted in the petroleum, coal and fuel processing as well as chemical sectors," the National Bureau of Statistics said. The bureau added that "the main raw material purchase price index and the ex-factory price index have entered an expansion phase for five consecutive months, and the overall price level in the manufacturing market continues to rise," citing rising costs as a major factor weighing on economic expansion.
China's manufacturing PMI stayed below 50 for eight consecutive months from April to November last year before rebounding to 50.1 in December. It turned to contraction in January (49.3) and February (49.0) this year, then hit a one-year high of 50.4 in March and recorded 50.3 in April.
Meanwhile, the non-manufacturing PMI, which had been in contraction the previous month, returned to expansion. The non-manufacturing PMI for May stood at 50.1, up 0.7 point from the previous month. By sector, business activity indexes for railway transportation, telecommunications, broadcasting, television and satellite services, and the insurance industry all exceeded 55. The construction sector, which has been in a prolonged slump, remained in contraction at 48.8 but rose 0.8 point from the previous month, showing signs of recovery. The National Bureau of Statistics said the figures "show that construction companies' confidence in the future industry development outlook has somewhat recovered." The composite PMI output index for May was 50.5, up 0.4 point from the previous month.
