Chinese, Japanese factories shrink less

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br chinacar Bloomberg A worker places the Citroen emblem on a vehicle on the production line at a plant operated by Dongfeng Peugeot-Citroen in Wuhan, China. Flash PMI surveys showed yesterday that activity in the Chinese and Japanese manufacturing sectors contracted at a slower pace this month than last. Photo: Bloomberg

Beijing - China’s factory sector turned in its best performance this year in May but activity still contracted for the fifth consecutive month, a survey showed yesterday, with divergent signals on exports and jobs pointing to an uncertain outlook for the economy.

A similar survey showed Japanese factory activity contracted slightly this month but at a slower pace than last month, suggesting some recovery from the impact of a sales tax increase last month.

The HSBC/Markit flash purchasing managers’ index (PMI) for Chinese manufacturing rose to 49.7 in May, the highest since December last year, from a final reading of 48.1 last month.

The first reading of China’s economy this month was much stronger than the median forecast of 48.1 in a Reuters poll. Hovering just below the 50-point level that separates growth from contraction, it still showed a slight drop in business.

That was still welcomed by those looking for signs of stabilisation after a run of weaker-than-expected data this year, and the news boosted Asian stocks and the Australian dollar – a favourite market proxy for China’s economic health.

“Looking at China as well as Japan, the Asian manufacturing business cycle could be stabilising a bit in May after a tough April, but the improvement is modest,” economist Bill Adams at PNC Financial said.

A breakdown of China’s PMI showed the closely watched indices that measure output, domestic and foreign demand recovered sharply this month to rise back above 50 points.

New export orders had the biggest turnaround, climbing 3.4 points to 52.7, a level not seen since late 2010.

However, the employment index fell more than a point to be well under 50, the 13th consecutive month Chinese factories shed jobs.

A deteriorating labour market would worry the government, as job creation is seen as important for social stability.

Premier Li Keqiang said in March that it was acceptable for growth to be slightly below this year’s 7.5 percent target as long as the job market held up.

But Julian Evans-Pritchard from Capital Economics in Singapore said Beijing need not be too worried for now. He said rising infrastructure investment and export sales were offsetting the drag from sectors such as the cooling property market.

Japanese factory activity also contracted at a slower pace last month. The Markit/JMMA flash Japan manufacturing PMI rose to a seasonally adjusted 49.9 from April’s final reading of 49.4.

Unlike China, however, indices for output, new orders and new export orders fell. – Reuters


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