China's manufacturing unexpectedly accelerated in May, indicating that a slowdown in economic growth in the first quarter may be stabilising.
Bloomberg News reports that the Purchasing Managers' Index rose to 50.8 from 50.6 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing yesterday.
That was higher than all estimates in a Bloomberg News survey of 30 analysts and compares with the median projection of 50, which marks the dividing line between expansion and contraction.
The report may provide some comfort to policy makers after the preliminary reading of a private manufacturing survey pointed to the first contraction in seven months.
Premier Li Keqiang said last week that government measures to reform the economy will be accompanied by tapered-off levels of growth and warned last month that new stimulus would create risks.
"Given the mixed signals, I would wait for the full set of activity data such as industrial production and electricity production to judge the momentum of the economy," said Zhang Zhiwei, chief China economist at Nomura Holdings Incorporated in Hong Kong.
"The rise of the official PMI further reduces the chance for monetary policy easing."
The statistics bureau will release May industrial output, retail sales, and inflation data on June 9 along with fixed-asset investment for the first five months of the year. The customs administration will report May trade figures on June 8.
The preliminary reading of a Purchasing Managers' Index released by HSBC Holdings Plc and Markit Economics fell to 49.6 in May from 50.4 in April. The decline, if confirmed in the final report tomorrow, will be the gauge's first drop below 50 since October.
The federation and HSBC will also release non-manufacturing surveys for May this week, providing a fuller picture of an economy that's increasingly reliant on service industries for growth. Both showed slower expansion in April.
President Xi Jinping said the fundamentals of the Chinese economy are "sound" and growth is on a "more stable footing," according to the English-language transcript of a written interview he gave to Latin America media released by the official Xinhua News Agency on May 31. "We are more interested in the quality and efficiency of economic growth rather than the speed of growth only," he said, noting that employment is stable and incomes are rising.
Xi's comments, made ahead of his visit to Trinidad and Tobago, Costa Rica and Mexico, reinforce signals from policy makers that the government is prepared to tolerate a slower pace of expansion after annual average growth of 10.5 per cent in the past decade led to industrial overcapacity, rising financial risks and environmental degradation.
China's economy grew by 7.8 per cent in 2012, the slowest pace in 13 years and the government in March set a goal of 7.5 per cent for this year.
Last month, Premier Li warned that room for stimulus policies and government investment to meet its targets "is not big" and that such action would create "new problems and risks."
There will be no "incremental stimulus by the new government which understands the slowing potential growth and wishes to focus more on structural reforms," Lu Ting, head of Greater China economics at Bank of America Corporation in Hong Kong, said in a research note yesterday.
Stocks in China fell by 0.7 per cent on May 31 on concern the official PMI report would also show a decline. The Shanghai Composite Index rose by 0.5 per cent for the week and has rebounded by 5.8 per cent from this year's low on May 2.
"Markets' fear of a furtherbv growth slowdown will be alleviated and we expect a positive market reaction" tomorrow, Lu said.
Analysts are paring forecasts for economic growth after expansion unexpectedly slowed to 7.7 per cent in the first quarter from a year earlier.
The median estimate in a Bloomberg News survey conducted from May 16 to May 21 was for a pace of 7.8 per cent in the second quarter, down from a projection of eight per cent in an April survey.
