China factory activity dips as property pain persists

China's manufacturing PMI falls to 49.5 in May, signaling contraction due to weaker output, new orders, and exports.

China’s manufacturing activity unexpectedly fell in May, keeping alive calls for fresh stimulus as a protracted property crisis in the world’s second-largest economy continues to weigh on business, consumer and investor confidence.

The official manufacturing purchasing managers’ index (PMI) dropped to 49.5 in May from 50.4 in April, the National Bureau of Statistics (NBS) said on Friday, below the 50-mark separating growth from contraction and missing analysts’ forecast of 50.4.

The disappointing number adds to a series of recent indicators showing the $18.6 trillion economy is struggling to get back on its feet, eroding earlier optimism seen after better-than-expected output and trade data.

“I think the data particularly reflects soft domestic demand, the housing sector continued to worsen and retail sales were not strong,” said Xu Tianchen, senior economist at the Economist Intelligence Unit. “The May reading may indicate a temporary blip. We’ll probably see an improvement in June as new government policies start to impact, such as the property rescue plan and the issuance of special sovereign bonds,” he added.

The PMI’s sub-indices for new orders and new export orders both tipped back into contraction after 2 months of growth, while employment continued to shrink.