China's May PMI drops to 50.4%

BEIJING -- China's manufacturing sector expanded at its slowest pace this year in May, according to official survey results published on Friday, prompting expectations for further softening in the world's second-largest economy.

The purchasing managers index, a readout of the country's manufacturing activity, ended five consecutive months of growth in May and retreated to 50.4 percent from 53.3 percent in April, the China Federation of Logistics and Purchasing said Friday.

The figures for May showed that although China's economy decelerated, the overall growth trend remained unchanged, as the reading still stood above 50 percent, the CFLP said in a statement.

A PMI reading of 50 percent demarcates expansion from contraction.

"The short-term moderation of economic growth at present does not mean the Chinese economy is entering a recession," the statement said.

The May figure was below market estimates and raised concerns over slower economic growth, but the possibility of a hard landing can be ruled out, as the government has started to implement supportive measures, according to a commentary by ANZ Greater China.

The world's second-largest economy is likely to further lose steam with a decline in the sub-index for new orders, pointing to even weaker future factory activity, according to Zhang Liqun, a researcher from the Development Research Center of the State Council, or China's cabinet.

The sub-index for new orders dipped below 50 percent in May, down 4.7 percentage points to 49.8 percent, indicating shrinking demand in the manufacturing sector, the CFLP data showed.

The CFLP figures, co-published with the National Bureau of Statistics, were followed by the release of the HSBC manufacturing PMI later Friday morning, which showed a final reading of 48.4 for May, down from 49.3 in April and marking the seventh consecutive monthly decline.

The real economy will continue to cool in the second quarter and authorities will be prompted to implement more supportive policies, Qu Hongbin, chief economist at HSBC China, said when commenting on the HSBC statistics.

Zhang noted that the economic downshift will be mitigated by government efforts to maintain growth, especially policies aimed at stabilizing investment.

China's economy expanded 8.1 percent year on year in the first quarter of 2012, nearly reaching a three-year low over diminishing export orders and a flagging property market.

The central government pledged last month that it will prioritize stabilizing economic growth, warning that the economy faces "increasing downward pressure."

A series of policies announced last month to open up channels for private investment to flow into state-dominated sectors, as well as a plan adopted on Wednesday by the State Council to boost the development of seven strategic emerging industries, are two of the most recent moves made by the government to shore up investment and growth.

Cai Jin, CFLP vice-chairman, said the economy is expected to bottom out in May and then pick up on government support to achieve annual growth of 8.2 to 8.3 percent this year.

The CFLP data showed that the sub-index for small enterprises remained below 50 percent for the second consecutive month in May, falling to 45.2 percent from 49.1 percent in April.

The sub-index for production lost 4.3 percentage points from the previous month to 52.9 percent in May, while that for inventory rose 2.7 percentage points to 52.2 percent, according to the CFLP.

The sub-index for new export orders in May dropped 1.8 percentage points to 50.4 percent, while that for imports shed 2.4 percentage points to 48.1 percent.

The CFLP measures PMI for the manufacturing sector based on surveys of 820 sample companies in 31 industries nationwide.