China Factory Activity Drops in May

The country saw weakening domestic demand and a decrease in export orders, particularly from the United States.

SHANGHAI — Factory activity in China shrank for the first time in seven months in May mainly due to weakening domestic demand and a decrease in export orders, particularly from the United States, according to a HSBC survey released on Monday.

HSBC’s Chinese purchasing managers’ index fell to 49.2 last month, down from 50.4 in April, indicating continued fragility in the world’s second largest economy. May’s purchasing managers’ index, or PMI, marked the lowest reading since October 2012, HSBC said. New export orders dropped for the second consecutive month while purchasing activity was lower for the first time in eight months. Numbers below 50 on the 100-point scale indicate contraction.

Official figures released on Saturday from China’s statistics bureau recorded May’s PMI as 50.8, up slightly from a reading of 50.6 in April. A preliminary HSBC survey released on May 23 projected PMI for the month to fall to 49.6. 

Qu Hongbin, HSBC’s chief economist for greater China, said weakening activity in the manufacturing sector could spur the Chinese government to pursue further economic stimulus. “With persisting external headwinds, Beijing needs to boost domestic demand to avoid further deceleration of manufacturing output growth and its negative impact on the labor market,” Qu said in a statement. “The new leaders should strike a delicate balance between reform and growth.”

HSBC said May’s PMI survey showed that staff numbers declined for the second month in a row while the rate of job reductions was modest.