Caixin's mfg PMI up in May; experts foresee rebound on policy support

China's economic recovery showed fresh signs of momentum with factory activity data reflecting improvement in May, as gradual resumption of work and production was seen in regions hit hard by the recent COVID-19 outbreaks.

Experts said they expect to see stronger policy support in the coming months to bolster the economic rebound. Targeted monetary easing will support small and medium-sized enterprises and manufacturing, they said.

They made the remarks after a private-sector survey, which focuses on small and export-oriented businesses, showed on Wednesday that manufacturing activity fared better in May.

The Caixin China General Manufacturing Purchasing Managers' Index came in at 48.1 in May, up from 46 in April, staying in contraction territory for the third consecutive month.

A PMI reading above 50 signifies economic expansion, while one below 50 signals contraction.

"Manufacturing sector activity showed a marginal improvement in May (compared to the previous month) but still remains in contraction territory," said Wang Zhe, senior economist at Caixin Insight Group.

Wang noted the economy has been affected severely by the pandemic, calling for more efforts to stabilize employment, ensure smooth logistics, speed up the resumption of work and production and increase support for both enterprises and people with lower earnings due to the pandemic.

The reading is in line with the official manufacturing PMI released on Tuesday by the National Bureau of Statistics, which also rose from 47.4 in April to 49.6 in May, the highest level in three months.

Many experts said manufacturing activity is likely to continue its recovery momentum this month onward on the back of the government's effective measures to stabilize the overall economy and control the pandemic.

Lu Ting, Nomura's chief China economist, said his team expects the official manufacturing PMI to rebound to 50.3 in June, returning to expansionary territory for the first time since February.

Wen Bin, chief researcher at China Minsheng Bank, said China's economy is facing multiple downward pressures from COVID-19 outbreaks and changes in the international environment. Economic activity, he said, had cooled sharply in April with a drop in both industrial production and consumption.

However, citing the government's intensified efforts to strengthen macro-policy adjustment and stabilize the overall economy, Wen said China's economy is likely to rebound in the coming months with stronger policy support.

The State Council, China's Cabinet, unveiled a document on Tuesday urging the implementation of a package of detailed policy measures to boost the economy.

The package, which was announced at a State Council executive meeting last week, comprises 33 measures covering fiscal and monetary policies, investment, consumption, industrial and supply chains, and the livelihood of people.

"We think the economy has likely hit the bottom of this cycle, for now," said Tommy Wu, lead economist at Oxford Economics, a think tank. "Growth will likely start to pick up more visibly in June. We forecast a quarterly contraction in the second quarter before a recovery in the second half."