China factories scrabble for growth in May, export demand shrinks

Growth in China's giant factory sector edged up to a six-month high in May but export demand shrank again, prompting companies to shed jobs and keeping alive worries about a protracted economic slowdown, a government survey showed on Monday.

Workers look at machines moving newly made raw bricks at a factory in Huaibei, Anhui province July 31, 2014.

In a sign that China's worst downturn in at least six years is hurting its services companies, too, a similar survey showed growth in that sector slipped to a low not seen in more than five years.
Services have been one of the lone bright spots in the Chinese economy in the last year.

The muted reports reinforced the view that authorities would have to roll out more stimulus in coming months, despite having cut interest rates three times in six months. "China’s economy still faces strong headwinds," economists at ANZ Bank said in a note to clients.

"If capital outflow continues at the pace of the first quarter, we expect the People's Bank of China to cut the reserve requirement ratio by another 100 basis points, in addition to a further interest rate cut of at least 25 basis points."

The official manufacturing Purchasing Managers' Index (PMI) edged up to 50.2 from April's 50.1, the National Bureau of Statistics (NBS) said on its website, in line with analysts' forecast for a 50.2 reading.

A reading above 50 points indicates growth on a monthly basis, while one below that points to contraction. The non-manufacturing PMI, on the other hand, slipped to 53.2, a trough not seen since December 2008 and compared with April's 53.4, the NBS said. 

However, Zhang Liqun, an analyst at the China Federation of Logistics and Purchasing, which helps to compile the government PMI polls, argued that a rise in overall new orders in factories pointed to some steadying in market demand.