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China’s May factory activity cools as weak demand curbs output

Manufacturing slowed for a second month although activity has revived from record lows in February, when the government imposed tough travel restrictions, quarantine rules and factory suspensions to curb the spread of the respiratory illness.

The official manufacturing Purchasing Manager’s Index eased to 50.6 in May from 50.8 in April, National Bureau of Statistics data showed on Sunday, but held above the 50-point mark that separates expansion from contraction on a monthly basis. Analysts had expected a PMI reading of 51.

Export orders logged the fifth consecutive month of contraction, with a sub-index standing at 35.3 in May, well below the 50-point mark, as the coronavirus pandemic continued to take a toll on global demand.

“Judging by the PMI sub-indices, the absolute levels of demand-related indices are way below the production-related ones, indicating a pronounced constraining impact from demand on production,” said Zhang Liqun, an analyst with the China Federation of Logistics and Purchasing (CFLP), adding that more than 50% of companies have reported a lack of demand.

Factories reduced headcount for the first time since they reopened, with a sub-index falling to 49.4 from 50.2 in April, the survey showed.

In May, the PMI index for medium-sized and small enterprises fell to 48.8 and 50.8, respectively, while large companies reported a faster expansion in activity.

In an encouraging sign, the forward-looking total new orders gauge showed an improvement to 50.9 from April’s 50.2, suggesting domestic demand could be picking up soon.

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