New | China’s factory index shrinks for third month, signalling need for more stimulus

China’s factory activity contracted for a third month in May and output shrank at the fastest rate in just over a year, a private survey showed, indicating persistent weakness in the world’s second-largest economy that requires increased policy support.
The poor reading, which followed a raft of downbeat April data, reinforced analysts’ views that Beijing has to take bolder steps to combat a protracted slowdown, as growth threatens to drop below 7 per cent for the first time since the global financial crisis.
“The subdued flash PMI print suggests there is no clear sign of near-term stabilisation in the economy. Risks to the outlook remain to the downside,” Barclays economist Shengzu Wang said in a research note.
The preliminary HSBC/Markit Purchasing Managers’ Index fell to 49.1 this month, below the 50-point level that separates growth in activity from a contraction on a monthly basis.
Economists had forecast a reading of 49.3, slightly stronger than April’s final reading 48.9. After a brief rebound in February, the index has now been back in negative territory for three consecutive months.
“Softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near-term, as companies tempered production plans in line with weaker demand conditions,” said Markit economist Annabel Fiddes.