China factory activity contracts for first time in three months

BEIJING

Factory activity in China shrank for the first time in three months in May, data showed on May 31, a setback for Beijing as the sector is seen as a key driver of a fragile economic recovery owing to sluggish consumer spending.

The manufacturing purchasing manager's index (PMI), a key measure of factory output,  dipped to 49.5 last month, from April's 50.4, according to the National Bureau of Statistics (NBS).

A figure below 50 indicates a contraction in activity, while anything above points to expansion.

The last time the manufacturing PMI came in below 50 was in February.

NBS statistician Zhao Qinghe said manufacturing activity had been affected by "insufficient effective demand."

China's manufacturing sector has been an important pillar of a nascent recovery in the world's number two economy, with the country's army of consumers still cautious about spending owing to a debilitating debt crisis in the vast property sector.

"China cannot depend only on exports to drive its economy," Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note.

"The fiscal policy needs to become more proactive to boost domestic demand," he said, adding: "The change in policy stance in the property sector is one step in the right direction, but its impact on the economy is likely to be gradual".

The latest reading comes after the International Monetary Fund this week lifted its forecast for China's 2024 economic growth from 4.6 percent to five percent.

It cited Beijing's recent housing market support proposals as among the reasons for its decision, but warned that current industrial policy risks a "misallocation" of resources that could damage trade.