China's Factory Activity Unexpectedly Contracts in May, Biggest Drop Since 2022

China's Factory Activity Unexpectedly Contracts in May

A private survey revealed that China's manufacturing sector experienced a significant contraction in May, marking the steepest decline since September 2022. The Caixin/S&P Global manufacturing PMI registered at 48.3, falling below the 50-point threshold indicating contraction.

Key Findings

This follows official data also showing a contraction for the second consecutive month, albeit a slight increase to 49.5 from April's 49.

The private survey focuses on over 500 export-oriented firms, while the official PMI samples 3,000 companies and aligns closely with industrial output. The non-manufacturing PMI, covering services and construction, decreased slightly to 50.3, remaining above the expansionary mark of 50.

This downturn prompts calls for stronger stimulus measures to bolster China's economic growth, particularly as it faces existing challenges such as deflationary pressures and trade tensions. Despite previous measures, including interest rate cuts and reserve requirement ratio reductions by the People's Bank of China, the economy continues to face headwinds. Industrial output growth has slowed, and retail sales have underperformed. While exports showed resilience, rising 8.1% in April, the property sector continues to struggle with deepening investment declines.