By Gina Lee
Investing.com – Chinese factory activity fell at a slower pace in May 2022 as the country relaxes COVID-19 curbs in several cities. However, restrictive measures continued to weigh on demand and production, casting doubts on economic growth in the second quarter.
Data from the National Bureau of Statistics (NBS) showed that the manufacturing purchasing managers’ index (PMI) was 49.6, higher than both the 48 in forecasts prepared by Investing.com and the previous month’s 47.4 figure.
Although the PMI hit a three-month high, it remained below the 50-point mark indicating growth for a third consecutive month. This impacted production lines in other major Asian economies, with both Japan and South Korea also reporting declines in output.
"It shows the impact of COVID-19 outbreaks in May have not fully ended, leaving the economic outlook grim since the second quarter in 2020," Huaxing Securities chief economist Pang Ming told Reuters. Declines in China's midstream and downstream production were larger than they were upstream and small firms were hit harder than large firms, Pang added.
Although Shanghai and other major manufacturing hubs in the northeast eased restrictions earlier in the month, some investors said that the output resumption was slow, restrained by sluggish domestic consumption and softening global demand.
Although activity has started to rebound as COVID-19 curbs ease, the recovery is likely to remain tepid, according to Capital Economics economist Sheana Yue told Reuters.
"Indeed, there continues to be signs of supply chain disruptions in the survey breakdown... delivery times lengthened further while firms continued to draw down their inventories of raw materials, although at a less rapid pace than in April."
The country’s worst outbreak since the COVID-19 pandemic began in 2020, and the ensuing lockdown measures had a direct impact on the economy. Profits at China's industrial firms fell at their fastest pace in two years in April 2022, with high raw material prices and supply chain chaos eroding margins.
The services sector also remained soft, with the non-manufacturing PMI in May at 47.8. However, the figure was higher than the 41.9 figure from April.
With consumers under lockdown, retail sales in April shrank 11.1% year-on-year, the biggest contraction since March 2020. Catering services and auto sales were particularly hit, and activity in contact-intensive sectors was still in contraction, indicating that pressure on the services industry remains.
As the urgency to support the economy increases, Premier Li Keqiang reiterated frontloading of policy support during the previous week, saying that China would seek positive year-on-year economic growth in the second quarter.
The government has also vowed to broaden tax rebates, postpone social security payments and loan repayments, as well as roll out new investment projects to support the economy.