CIO sees major stimulus for China as unlikely, given decent year-over-year growth in 2Q and since the roughly 5% full-year growth target remains easily achievable. (ddp)

Manufacturing PMI remained below 50. China's May manufacturing PMI missed expectations and dipped further to 48.8 (consensus: 49.5), staying below 50 for the second straight month, with broad weakness led by a drop in new orders and production. In terms of subindexes, new orders dropped further to 48.3 from 48.8 in April, and export and import orders remained weak at 47.2 and 48.6, respectively (vs. 47.6 and 48.9 in April), pointing to weaker external as well as domestic demand. Production moderated to 49.6 from 50.2 previously, while supplier delivery times remained relatively stable at 50.5 (vs. 50.3 in April), suggesting supply chains were relatively resilient.


Nonmanufacturing PMI stayed solid though moderated. May's nonmanufacturing PMI remained strong at 54.5 (consensus: 55.2) albeit at a slower pace. The services PMI also held up well at 53.8, led by the hospitality, transport services, and catering sectors. These all came in above 55, echoing the strong Labor Day golden week holiday consumption data. Construction PMI remained elevated at 58.2 despite moderating from a peak in March, reflecting a strong ongoing infrastructure push.


The case for more policy support gets stronger. The PMIs signal China's recovery remained uneven in May, with manufacturing softening while services still tracked a solid rebound. Given sequentially weaker momentum, more targeted policy support is likely on the horizon as early as June, with a focus on big-ticket consumption, housing, and infrastructure. We also expect 1–2 modest RRR/MLF rate cuts for the rest of this year to keep liquidity reasonably ample and stabilize credit growth around 10%. But we see major stimulus as unlikely, given decent year-over-year growth in 2Q and since the roughly 5% full-year growth target remains easily achievable, in our view.


Main contributors - Kathy Li, Yifan Hu


Content is a product of the Chief Investment Office (CIO).


Original report - China May PMIs underscore an uneven recovery, 1 June 2023.