PMI predicts further manufacturing slump

China's manufacturing sector was predicted to deteriorate at a faster rate in May because of the further contraction of new orders and exports, HSBC Holdings Plc said.

The preliminary Purchasing Managers' Index (PMI) that indicates the operating conditions of the manufacturing industry slipped to 48.7 in May, the lowest reading this year, from April's 49.3, meaning economic growth may be under threat of cooling faster.

Following the disappointing batch of economic data in April, the government has been stepping up easing efforts to stabilize growth, including boosting liquidity, public housing, infrastructure investment and consumption.

"We expect Beijing to deliver more aggressive policy easing as inflation continues to slow," said Qu Hongbin, the HSBC chief economist in China.

"So long as the impact of these easing measures filter through, China should secure a soft landing in the coming quarters," he said.

The sub-index of new export orders sharply deteriorated in May, dropping to 47.8 from 50.2, with euro zone contractions set to deepen and the US economy likely to decelerate in the second quarter, according to the HSBC report.

Input prices at 48.3 and the four-month low output prices at 47.5 show that inflation continued to ease.

The HSBC survey is based on questionnaire replies from more than 420 manufacturing companies. A reading below 50 means contraction while that above 50 shows expansion.