HSBC index says China factory contraction eases in latest sign No. 2 economy is stabilizing

HONG KONG – China’s manufacturing contraction eased in May, a survey showed Tuesday, in the latest sign that the slowdown in the world’s second biggest economy is steadying.

The HSBC index, which is based on a survey of factory purchasing managers, climbed to 49.4 last month from 48.1 in April. The index uses a 100-point scale on which numbers above 50 indicate expansion. The number was weaker than 49.7 in a preliminary version of the survey because of a revision to stocks of finished goods.

The report follows a similar survey released on the weekend by the official China Federation of Logistics and Purchasing, which found that manufacturing grew for a third month to 50.8 in May, its highest point this year.

The disparity in results indicates that smaller private enterprises, which are given greater weight in the HSBC survey, are under more pressure amid the slowdown compared with big state companies, which predominate in the official survey.

“The final PMI reading for May confirmed that the economy is stabilizing, but it is too early to say that it has bottomed out, particularly in light of a weaker property sector,” said HSBC’s chief China economist, Qu Hongbin.

China’s economy has been undergoing a prolonged slowdown from double digit rates of expansion, with growth falling to 7.4 per cent in the first quarter, as leaders try to reduce dependence on trade and investment in favour of domestic consumption.

Policymakers in Beijing have unleashed several rounds of mini-stimulus when growth has appeared to slow too sharply, though they’ve resisted calls for broader relief measures.

“The lack of a sustainable growth momentum warrants stronger policy support. We expect both monetary and fiscal policy to be loosened gradually over the coming months,” Qu said.

HSBC’s survey showed that new export orders rose at their fastest pace in four years, in a sign that global demand is reviving faster than domestic conditions.