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No let-up seen in May output

By  Si Tingting (China Daily)
Updated: 2009-06-02 11:18

China's manufacturing sector witnessed better-than-expected growth in May, pointing to fresh evidence of recovery stabilizing in the world's third-largest economy.

The Chinese official version of the Purchasing Managers' Index (PMI), published by the China Federation of Logistics and Purchasing yesterday, posted its third result above the watershed 50, though it dipped to 53.1 from 53.5 in April. A reading over 50 indicates an expansion of activity in the manufacturing sector, while one below 50 suggests contraction.

Related readings:  Shares soar on fuel price hike, manufacturing  China's PMI of manufacturing sector slightly down in May  PMI of manufacturing sector stood at 53.1% in May  China issues detailed plan to boost equipment manufacturing

"The May PMI, which continued to stay above 50, shows that the economy is continuing to rebound," Zhang Liqun, a researcher with the Development Research Center of the State Council, or the cabinet, said in a statement accompanying the release of the figure.

"The smaller than expected monthly retreat in May, as headline PMI only fell by 0.4 points, is encouraging," Ken Peng, an economist with Citi Group, said.

Peng originally expected the number to fall to 50.5. "This suggests stimulus efforts are sustaining production recoveries despite the seasonal pattern of May declines," said Peng, who also claimed that the Chinese version PMI, which is weighted mostly for large-scale State-owned enterprises, had helped to ease worries that manufacturing would drop back into contraction mode this month.

A competing version of the PMI, published by Hong Kong brokerage CLSA later yesterday, depicted an even more promising picture - it rose in May to a 10-month high of 51.2 from 50.1 in April. It was the second month in a row that the index has been above 50. The CLSA PMI stood well below the watershed from August 2008 through March, as weak global demand sapped momentum from the industrial sector.

"A relatively weaker Chinese yuan in May, as well as a heavier dose of tax breaks for China's export sectors, also contributed to a better-than-expected PMI reading," Liu Yuhui, head of the Chinese economy evaluation center under the Chinese Academy of Social Sciences said.

As China's manufacturing sector will continue to rely heavily on exports, Liu believed a satisfying PMI reading in the coming months depends largely on the growth momentum of international demand.

US President Barack Obama announced the paycheck tax cut portion of his economic-stimulus plan in February, allowing the average American worker to get an extra $65 per month starting April 1.

"Hopefully, the tax cut for US consumers will boost their spending, and thereby, the demand for Chinese goods," Liu said. The varied performance of the sub-indexes of the PMI, measuring manufacturing activity including orders, inventories, output and employment, suggests a mixed picture of the country's economic trend, analysts said.