Survey shows China manufacturing contracting

BEIJING—A survey shows China’s manufacturing contracted this month, adding to signs a fragile recovery in the world’s No. 2 economy is slowing.

HSBC Corp. said Thursday the preliminary version of its monthly purchasing managers index fell to a seven-month low of 49.6 from April’s 50.4 on a 100-point scale. Numbers below 50 show a contraction.

“The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds,” said HSBC economist Hongbin Qu in a statement.

That showed a possible “downside risk to China’s fragile growth recovery” while signs of weakness in the labor market “call for more policy support” from the government, Qu said.

China’s economic growth slowed unexpectedly in the first quarter to 7.7 percent and forecasters have cut their growth outlook for the year.

The latest HSBC survey “pretty much dashed hopes” for an economic rebound this quarter, said Societe Generale economist Wei Yao in a report.

China’s top economic official, Premier Li Keqiang, said last week there was little room for additional government stimulus to boost growth. He said improvement would have to come from economic reforms. Chinese leaders have promised changes but have yet to announce details and economists say any reforms will take time to show results.

HSBC’s preliminary PMI is based on responses from 80 to 90 percent of the 420 manufacturing companies it surveys each month. The full survey is due out June 1.

May factory output increased but at a slower rate, while new orders and new export orders decreased, HSBC said.

Some analysts have suggested economic activity is weaker than reported by Beijing because export data might be distorted due to companies reporting inflated prices in an effort to evade capital controls and bring money into China.

Also Thursday, Capital Economics said its own activity indicator showed economic growth weakened in April after a brief upturn in March.

Growth in trade through Chinese ports is stable but railway freight has slowed and construction activity appears to be weakening, said economists Mark Williams and Qinwei Wang in a report.

“The weakness was broad-based,” the report wrote. “Our figures suggest that the economy is growing one to two percentage points slower than the official GDP data show.”