China factories scrabble for growth in May, export demand shrinks

Mon Jun 1, 2015 12:53am EDT
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By Koh Gui Qing

BEIJING (Reuters) - Growth in China's giant factory sector edged up to a six-month high in May but export demand shrank again, prompting companies to shed jobs and keeping alive worries about a protracted economic slowdown, a government survey showed on Monday.

In a sign that China's worst downturn in at least six years is hurting its services companies, too, a similar survey showed growth in that sector slipped to a low not seen in more than five years.

Services have been one of the lone bright spots in the Chinese economy in the last year.

The muted reports reinforced the view that authorities would have to roll out more stimulus in coming months, despite having cut interest rates three times in six months.

"China’s economy still faces strong headwinds," economists at ANZ Bank said in a note to clients.

"If capital outflow continues at the pace of the first quarter, we expect the People's Bank of China to cut the reserve requirement ratio by another 100 basis points, in addition to a further interest rate cut of at least 25 basis points."

The official manufacturing Purchasing Managers' Index (PMI) edged up to 50.2 from April's 50.1, the National Bureau of Statistics (NBS) said on its website, in line with analysts' forecast for a 50.2 reading.

A reading above 50 points indicates growth on a monthly basis, while one below that points to contraction.   Continued...

Workers look at machines moving newly made raw bricks at a factory in Huaibei, Anhui province July 31, 2014. REUTERS/China Daily