China’s official manufacturing purchasing managers’ index, published by the National Bureau of Statistics over the weekend, showed activity falling to 50.0 in May, down from 50.3 in April. This 50.0 level represents the threshold between expansion and contraction and marked a 3-month low.
There was a broad-based decline in the sub-indices. But we saw the most notable drops in new orders, which fell back into contraction at 49.9 from 50.6, and new export orders, which fell to 48.6 from 50.3. The Raw Material Purchasing Price Index (60.5) and Ex-factory price index (51.9%) also saw fairly steep declines in May. Still, both remain well above 50, suggesting that China’s reflation trend is continuing.
The production sub-index also saw a 0.3pp drop but remained comfortably in expansion territory at 51.2 in May. Manufacturing activity still looks firm. Large enterprises have resumed their long‑running lead — their PMI has topped medium and small firms in 23 of the past 25 months — suggesting April’s brief rebound among smaller manufacturers may have been a blip rather than a turning point.
The RatingDog PMI fared better, showing a slight moderation to 51.8, down from 52.2. This outperformed market forecasts for a bigger decline. It suggests China’s export-focused manufacturing continues to outperform, with external demand remaining solid while domestic demand has been soft. The RatingDog PMI release noted that, aside from employment, the sub-indices all contributed positively in May — though mostly at lower levels than in April.
In the past several years, we’ve seen the correlation between PMI and industrial production weaken. Last month, we saw PMIs rise, while industrial production plummeted to a multi-year low. We believe this may be explained by China’s industrial activity becoming increasingly high-tech focused. Also, many of the more traditional manufacturing sectors, such as cement and steel, are still struggling amid the property market downturn.