China Manufacturing Sector Growth Improves In May

China's manufacturing sector expanded at a faster pace in May on robust new orders and production, data published by IHS Markit showed on Tuesday.

The Caixin manufacturing Purchasing Managers' Index rose to 52.0 in May from 51.9 in April. The reading was expected to remain unchanged at 51.9.

Although mild, the upturn was the strongest recorded in the year to date. A score above 50 indicates expansion in the sector.

Total sales grew the most in five months, supported by greater demand both at home and overseas. New export order growth improved to a six-month high in May.

Production increased in May but the pace of growth softened due to the material shortage and higher purchasing costs.

Employment was broadly unchanged in May. While some firms added to their payrolls in order to expand capacity, other companies expressed a more cautious approach to hiring.

Average cost burdens rose rapidly in the latest survey period, with the rate of inflation the quickest since December 2016. Firms generally passed on greater input costs to clients by raising their output prices which increased at the fastest rate since February 2011.

Manufacturing firms remained confident that output would increase over the year ahead amid forecasts of rising customer demand and new product releases. However, the level positive sentiment dipped to a four-month low amid rising costs and pandemic-related uncertainty.

To sum up, manufacturing expanded in May as the post-epidemic economic recovery kept its momentum, Wang Zhe, a senior economist at Caixin Insight Group said.

Inflationary pressure would limit the room for monetary policy maneuvers, Wang noted. The price transmission effect emerged as manufacturing output prices surged last month. Rapidly rising commodity prices began to disrupt the economy as some enterprises began to hoard goods, while some others suffered raw material shortages.