Weakening demand weighs on Chinese factory activity

(Sharecast News) - China's factory activity slowed in May, according to official figures, as demand weakened while input costs remained high.

The latest manufacturing purchasing managers' index, released by the National Bureau of Statistics over the weekend, fell to 50.0 from 50.3 in April, in line with expectations. It was the lowest reading for three months.

Within that, new orders shrank to 49.9 from 50.6 a month earlier, while new export orders slid to 48.6 from 50.3. Output growth slowed to 51.2 from 51.5.

Input cost inflation moderated, falling to 60.5 from 63.7, but remained significantly above the neutral 50.0 benchmark. A reading below 50.0 indicates contraction, while one above it suggests growth.

War in the Middle East has sent energy prices soaring worldwide, but Asia - which imports much of its energy from the region -has been especially hard hit. As inflationary pressures have mounted, so has consumer sentiment weakened.

However, in contrast, the non-manufacturing PMI unexpectedly nudged back into expansion, NBS data confirmed, rising to 50.1 from 49.4, while the general PMI rose 0.4 points at 50.5.

Lynn Song, chief economist, Greater China, at ING, said the mixed data suggested the economy was "muddling through".

"In the past several years, we've seen the correlation between the PMI and industrial production weaken," she said. "Last month we saw PMIs rise, while industrial production plummeted to a multi-year low. We believe this may be explained by China's industrial activity becoming increasingly high-tech focused.

"Also, many of the more traditional manufacturing sectors, such as cement and steel, are still struggling amid the property market downturn."