BEIJING (Reuters) – China's largest manufacturing industry recorded the fastest growth of eight months in May. Expectations were surpassed and worries about a slowdown eased, though US trade tensions and a crackdown on debt suggest a bumpy ride ahead.
The official PMI (PMI), published on Thursday, rose to 51.9 in May, from 51.4 in April, and remained well above the 50-point mark, which separates growth from contraction for the 22nd consecutive month.
Analysts surveyed by Reuters predicted that the value would drop slightly to 51.3.
Production expanded at the highest rate in six months in May, while new orders rose to an 8-month high thanks to rising commodity prices.
Strong manufacturing figures are fueling fears of an expected loss of momentum in the world's second largest economy as policymakers steer debt risk and difficult trade relations with the United States.
In particular, export orders improved on the previous month. Some economists suspect that Chinese companies have carried out frontloading operations due to the Sino-US trade frictions.
Overall, however, economists were skeptical of the sustainability of the strength of the industrial sector, suggesting that the economy will come under pressure in the coming months.
"We doubt that this strength will be sustainably sustained, as it reflects, above all, a temporary increase in industrial production through environmental easing and not a reversal of underlying demand," said Julian Evans-Pritchard, senior Chinese economist at Capital Economics, in a note after the data release.
Nomura analysts also believed that the strong PMI numbers will be short-lived. "The growth in final demand, such as infrastructure and real estate investments, has at least partly broken down in recent months due to the government's debt relief efforts."
SMALL ENTERPRISES KEEP FUNDING
Beijing controls higher-risk investments, shadow banking and speculation in the real estate sector but he was interested in keeping the broad economy financially viable.
The industrial sector, which is an important source of employment, remained healthy, with profits rising fastest in six months, supported by continued strength in the steel sector.
But the latest survey showed that more manufacturers were concerned about tightening funding in recent months, with 40.1 percent of all surveyed companies raising the issue in May, according to Zhao Qinghe, an official at the Bureau of Statistics ,
"The cost pressures are still one of the biggest problems that Chinese manufacturers face today," Zhao said.
Small business activity declined in May after expanding the previous month, with both large and mid-sized companies experiencing positive growth.
Hi-tech manufacturing activity rose to 54.8 in May, despite the upcoming US Customs Tariff list under Intellectual Property Investigation and Restrictions on Chinese Investment in the US [April1965] Washington said on Tuesday that it would advance its threat To raise tariffs on Chinese imports worth up to $ 50 billion and revive new concerns about a trade war between the world's two largest economies. The tensions in the trade were only shortly after Beijing had agreed to buy more of the US.
China's economy grew slightly faster than expected in the first quarter at 6.8 percent. However, there were signs of stress as investment growth slowed in April to nearly 20-year lows and retail sales declined.
Supported by government spending on infrastructure spending, a resilient real estate market, and unexpected export growth, Chinese manufacturers contributed to strong growth over the past year.
Economists still expect China's economic growth to fall from 6.9 percent in 2017 to 6.5 percent this year. This is due to rising borrowing costs, stricter limits on industrial pollution, and crackdowns on community spending.
Most China observers said they had dampened their second-quarter growth by a solid 6.8 percent in the first three months of the year. However, ANZ economists see steady growth in the June quarter, basing their support on production increases and new orders in Thursday's PMI poll.
A sister survey showed that Chinese service sector growth picked up in May as well: the PMI for non-manufacturing (PMI) rose from 54.8 in the previous month to 54.9.
An underestimation of construction activity, a key driver of growth for 2017, was 60.1 in May, compared to 60.6 in April.
Chinese policymakers expect service and consumption growth to rebalance their economic growth model from their heavy reliance on investment and exports. The services sector today accounts for more than half of the economy, and rising wages are giving more influence to Chinese consumers.
A combined PMI covering both production and services rose to 54.6 points in May (April 54.1).
(For a chart on the Chinese Economic Indicator, click: tmsnrt.rs/2lQ48De)
Reporting by Stella Qiu and Ryan Woo; Cultivation of Shri Navaratnam