China's manufacturing business activity continued to improve in May, with an important index remaining in expansion territory, suggesting more policy easing in the coming weeks, official data showed on Monday.
The manufacturing purchasing managers' index (PMI), a key measure of factory activity in China, posted at 50.2 in May, up from 50.1 in April and March, according to data compiled by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing.
A reading above 50 indicates expansion, while a reading below 50 represents contraction.
Zhao Qinghe, a senior analyst with the NBS, said China's manufacturing PMI figures have been above the expansion/contraction threshold for the last three months thanks to a string of easing measures by the central government.
China International Capital Corporation (CICC) said in a report that the May manufacturing PMI showed incremental improvement, boosted by a broad-based rise in production and new order indicators, as well as further recovery in raw material prices.
The production sub-index posted at 52.9, the highest monthly reading since November. The sub-index for raw material prices remained below the threshold at 49.4, but it has risen notably since January, when it stood at 41.9.
The PMI sub-indices for large- and medium-sized enterprises in May posted at 50.7 and 50.4, respectively, both above the expansion/contraction threshold, which Zhao attributed to the government's growth-supportive measures, including tax breaks and streamlining administration.
The HSBC version of manufacturing PMI in May, however, stood at 49.2, up from 48.9 in April. Official PMI covers large enterprises as well as small- and medium-sized enterprises (SMEs), while the HSBC poll focuses more on SMEs.
The HSBC PMI index suggested continued downward pressure on the world's second-largest economy, and more stimulus measures are expected to be rolled out to help boost domestic demand and recover some growth momentum, the HSBC said in the report.
Zhao also said the manufacturing sector faces downward pressure and cited weak market demand and rising labor costs as major reasons.
The sub-indices for new export and import orders in May were both below the expansion/contraction threshold. The import orders sub-index has been on a downward trend for two months.
CICC said it continues to expect macro policy to remain supportive for cyclical recovery, and it expects investment demand recovery to pick up its pace toward the end of the third quarter, given stepped-up monetary loosening since March 2015.
Sharing the view, Merrill Lynch Global Research said in its report that it expects the government to step up fiscal spending in the coming months and for monetary policy easing to continue.
HSBC Global Research forecast another 250-basis-points (bps) reserve ratio cut and a 50-bps policy rate cut for the remainder of 2015, and the next move will likely be a 50-bps reserve ratio cut in the coming weeks.
