Channel NewsAsia

China manufacturing index hits five-month high: HSBC

Chinese manufacturing activity saw a sharp improvement in May, hitting a five-month high, HSBC said on Tuesday, but it warned more government action was needed to kickstart the world's number two economy.

BEIJING: An index of Chinese manufacturing activity saw a sharp improvement in May, hitting a five-month high, HSBC said Tuesday, but still showed contraction and the bank urged more government action to kickstart the world's number two economy.

The British banking giant said in a statement its preliminary purchasing managers' index (PMI), which tracks activity in the nation's factories and workshops, came in at 49.7 this month, well up from a final reading of 48.1 in April.


The index is a closely watched gauge of the health of the Asian economic powerhouse and key driver of global growth.

But while the figure is the best since December's 50.5, it was still below the 50-point break-even level suggesting the sector is still contracting.

"The improvement was broad-based with both new orders and new export orders back in expansionary territory," Qu Hongbin, HSBC's Hong Kong-based economist, said in the statement.

"Some tentative signs of stabilisation are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs," he added.

But he said that downside risks to growth remain with the property market, which drives expansion in a wide range of industries from steel to home decoration, continuing to cool.

"We think more policy easing is needed to put a floor under growth in the coming months," Qu said.

In the first three months of 2014, China's economy grew 7.4 per cent, weaker than the 7.7 per cent in October-December and the worst since a similar 7.4 per cent expansion in the third quarter of 2012.

Premier Li Keqiang in March announced a growth target of "around 7.5 per cent" for this year.

Adding to slowdown concerns, China's fixed-asset investment, a key driver of expansion that includes real estate investment, rose at its slowest pace in more than 12 years in January-April.

But some analysts were more optimistic and said the preliminary PMI figure was a sign that the world's second-largest economy was gaining momentum.

"The broad-based improvements in HSBC 'flash' PMI provide more signs of a recovery," Barclay's economists Serena Zhou and Chang Jian said in a research note.

Royal Bank of Scotland economists Louis Kuijs and Tiffany Qiu expected economic growth to accelerate so that the government was unlikely to take major loosening measures.

"There is now increasing evidence that global demand conditions are improving and, as suggested by today's flash HSBC-Markit flash PMI data, China's growth should pick up in the coming months," they said in a report.

"We expect policymakers to hold on and not ease the overall macro policy stance further, although we expect a relaxation of property specific policies."

Chinese stocks ended mixed after the data, with the benchmark Shanghai Composite Index slipping 0.18 per cent, or 3.66 points, to 2,021.29 while the Shenzhen Composite Index, which tracks stocks on the country's second exchange, edged up 0.07 per cent, or 0.68 points, to 1,028.68.

Beijing has since last month announced a series of measures to bolster growth, including tax breaks for small enterprises, targeted infrastructure outlays and incentives to encourage lending in rural areas. But it has publicly ruled out a massive stimulus.

Tweet Photos, Videos and Update on this Story to  #cna