A closely watched indicator of China’s private manufacturing sector showed the sector saw a third consecutive monthly decline in May, but the rate of contraction slowed from the previous month.
Caixin China General Manufacturing’s purchasing managers’ index rose to 48.1 in May from 46 in April, but still below the 50-point threshold that separates contraction from expansion. The reading was broadly in line with economists’ expectations.
The slowdown in the rate of contraction was helped by a smaller reduction in manufacturing output and new orders compared to April, suggesting that pressure on supply and demand was easing.
China’s economy was hammered in May by strict lockdowns to fight Covid-19, including in Beijing and Shanghai, leading Prime Minister Li Keqiang to issue a stern warning that the country could struggle to show positive economic growth this quarter.
The Caixin PMI found that the time it took for goods to reach manufacturers had continued to lengthen “significantly” as Covid restrictions on travel weighed on the country’s logistics network. Business confidence for next year slipped to its lowest level in five months as concerns over the virus and the war in Ukraine weighed on sentiment.
On Tuesday, an official indicator of manufacturing activity, which puts more emphasis on large state-owned companies and tends to give a more optimistic rating, came in at 49.6.
Wang Zhe, senior economist at Caixin Insight Group, said Covid outbreaks continued to constrain the economy in May and the negative impacts of the latest waves could outweigh those of 2020, when the pandemic began.
“Policy makers need to pay attention to employment and logistics. Removing barriers in supply and industrial chains and promoting the resumption of work and production will help stabilize market entities and protect the labor market,” Wang said.