June 1, 2012
Translated by Zhu Na

China’s official Purchasing Managers Index (PMI), an important gauge of manufacturing activity in the country, fell to 50.4 in May, a drop of 2.9 percentage points from the April reading of 53.3.

The figure, which was jointly announced by the China Federation of Logistics & Purchasing (CFLP) and the National Bureau of Statistics earlier this morning, was the lowest in five months.

A PMI figure above 50 suggests an improvement in activity, while one below 50 shows a deterioration.

A poll of economists by Dow Jones Newswires showed that analysts expected the figure to come in at 51.5, while a similar survey conducted by Reuters showed that economists were expecting a reading of 51.1.

According to the CFLP, the decline shows that economic growth has slowed to a certain degree, but the fact that the index has remained above 50 for six consecutive months also reveals that the growth trend has not altered.

If we look at the index in detail, of the eleven sub-indicies, ten fell when compared to last month's figure, with the finished goods inventory sub-index being the only indicator that increased month-on-month.

Of the ten sub-indices that saw monthly declines, the purchasing price sub-index witnessed the steepest fall, with a hefty 10 percentage point drop. Sub-indices that measure production, new orders and backlogs all declined by more than 4 points.

When analyzed according to industry, of the 21 industries monitored, ten industries including metals; food, alcohol and beverages; textile and clothing; electric machinery and equipment manufacturing; and petroleum processing and coking had a PMI reading of over 50, the remaining 11 industries had a PMI reading of below 50.

Large and medium-sized enterprises had readings higher than 50 but small enterprises had a reading lower than 50.

According to Zhang Liqun (张立群), an economist with the Development Research Center, a think-tank under China's State Council, "The PMI index in May declined substantially, which is consistent with the downward trend in economic growth. The big decrease in new orders indicated that the operation rate of enterprises is likely to decline further in the future, and that economic growth might continue to fall. Recently there have been some minor adjustments to macroeconomic policy, especially in terms of stabilizing investment, these measures should help stabilize the downward trend."

The official Chinese PMI has held up better than a similar but separate survey that is sponsored by HSBC.

A preview of an alternate PMI reading produced by HSBC that was announced last week, predicted that the reading fell to 48.7 in May, down from 49.3 in April.

Links and Sources
China Federation of Logistics & Purchasing: 2012年5月份中国制造业PMI为50.4%
NBS: 2012年5月中国制造业采购经理指数为50.4%