China's slowing growth has hit its manufacturing sector, feeding calls for more central government policy intervention to shore up the world's second-largest economy.
The official purchasing managers index for May, released by the National Bureau of Statistics, sits at 50.4 per cent, still slightly in expansion territory though down from last month's 13-month high of 53.3.
A private HSBC calculation, more heavily weighted toward smaller private firms, is also down month-on-month, to 48.4 from last month's 49.3.
Increasing the worry, HSBC economists wrote, is that there could be more to come, given the risks from falling exports and the left over impact of Beijing's tightening, particularly in the property market, last year.
Though the two indexes are now following the same trend – unlike last month, when the official PMI rose despite HSBC findings falling – they remain on different sides of the magic 50, which denotes the line between contraction and expansion, in part because the official index focuses more on state-owned enterprises that have better access to bank loans. But they also reflect the radically different opinions on the state of China's economy.
"There is more than the usual amount of disagreement about China's economic prospects at the moment, with a notable split between those focusing on a top-down macro picture that doesn't look too bad, and those who highlight admittedly ugly reports of small businesses shutting down and borrowers scrambling for cash," wrote Andrew Batson, research director at GK Dragonomics, who maintains some of the slowing may be a symptom of the restructuring of manufacturing toward higher-value, less labour-intensive goods.
The question now is what the Chinese government will do next. Insistent in recent weeks that another stimulus package on the level of the 2008 crisis is not on the way, authorities have nonetheless stepped up approvals of infrastructure projects, relaxed banks' reserve requirement ratios, and are easing conditions for new, local government-issued bonds, reflecting concerns that policies intended to deliberately slow China's growth may have overshot the mark.
Special to The Globe and Mail