China's factories show signs of life

May 21, 2014: 11:26 PM ET
china pmi
China's factories have turned in weak performances to start 2014.
HONG KONG (CNNMoney)

China's factories appear to be on the mend this month, according to an early gauge of activity in the country's all-important manufacturing sector.

HSBC said its "flash" measure of sentiment among manufacturing purchasing managers was 49.7 in May. The rebound from the index's final reading of 48.1 in April was sharper than analysts had expected.

While the index showed improvement, any number under 50 still indicates a deceleration in the manufacturing sector.

Still, economists said advances in new orders and output prices were positive developments that suggest factories are now on firmer footing

"Today's PMI reading suggests that downwards pressure on the manufacturing sector has eased markedly," said Julian Evans-Pritchard of Capital Economics. "While downwards pressure on the economy remains we aren't seeing as rapid a slowdown this quarter as last."

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China's economy is off to a sluggish start this year, with first quarter GDP coming in at 7.4% -- a touch slower than Beijing's 7.5% annual target.

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The real estate market is showing signs of weakness. Industrial production, retail sales, and investment growth have all disappointed.

The worrying economic data out of China has raised expectations Beijing will respond with stronger stimulus measures in an effort to stabilize growth.

"Downside risks to growth remain, particularly as the property market continues to cool," said HSBC economist Hongbin Qu. "We think more policy easing is needed to put a floor under growth in the coming months."

The Chinese government will release its official PMI measurement for May on June 1.

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