China: May PMIs provide mixed signals

China Macro: May manufacturing PMIs give mixed signals about state of recovery

China’s PMIs for May published today and yesterday provide mixed signals over the strength of China’s recovery following the Zero-Covid exit. Today, Caixin’s manufacturing PMI came in stronger than expected, at 50.9 (April/consensus: 49.5), rising back to above the 50 neutral mark separating expansion from contraction. The improvement was broad-based, with the components for output, domestic orders and export orders all improving compared to April, although the unemployment component weakened further. This was quite a different picture compared to the one provided by the official PMIs, published by NBS yesterday. The official manufacturing PMI dropped to a four-month low of 48.8 (April: 49.2, consensus: 49.5), with the output component falling back to and the domestic and export orders components remaining below the neutral 50 mark. The PMI survey from NBS is larger than Caixin’s version (samples of around 3200 and 650 firms, respectively), and has a stronger focus on the larger state-owned firms (whereas Caixin’s survey focuses more on private and export-oriented firms).

Divergence between services and industry continues

Meanwhile, the official non-manufacturing PMI for May fell more than expected to 54.5 (April: 56.4, consensus: 55.2), remaining at relatively high levels but confirming that the reopening rebound is beginning to slow. The official composite PMI (a weighted average of the output indices of manufacturing and services), fell to a three-month low of 52.9 (April: 54.4) although remaining clearly in expansion territory. Caixin’s equivalent of the services and composite PMIs will be published on Monday 5 June. All in all, the May PMIs do show the ongoing divergence between improving services/consumption – profiting the most from the reopening rebound – and weaker industry/investment, with headwinds from the property sector, the global growth slowdown and US-China tensions still present. See also our recent China Monthly, A reopening rebound is not the same as ‘firing on all cylinders’.