China May PMI: Economy Revives, External Risks Remain

  • Today IHS/Markit released China’s May PMI data. The data came in 50.7 compared to 49.4 in April. Notably, the reading was better than expected.
  • The Chinese economy bounced back sharply as the country contained the pandemic. While the domestic demand environment has improved, external risks present a challenge to China’s economy.

China’s May PMI

Data released by the IHS/Markit showed that China’s May PMI rose to 50.7 compared to 49.4 in April. The data was better than expected. Also, the reading was above 50, which means an expansion in China’s May manufacturing activity. Notably, while the rest of the world is still grappling with the fallout of the deadly virus that originated in China, the country has controlled the pandemic.

China’s official May PMI was also above 50. While the official PMI data is largely based on big state-owned enterprises, the IHS/Markit survey includes small and medium enterprises.

China’s economy rebounds

China’s May PMI data shows that China’s economy bottomed in the first quarter. The country’s economy contracted sharply in the first quarter. In the April update, the IMF said that it expects China’s economy to grow 1.2% this year. The IMF expects a GDP contraction in all of the other major economies. While China’s May PMI showed that the domestic economy is reviving, external risks are still elevated.

May PMI IHS/Markit survey

In the report on China’s May PMI data, IHS/Markit said, “While manufacturing output continued expanding at a faster clip, total demand only improved slightly due to sluggish external demand.” The demand for Chinese goods has fallen in other countries due to the pandemic. Meanwhile, IHS/Markit said that China’s “manufacturing production recovered faster than demand as the domestic economy recovered from the epidemic. Sluggish exports remained a big drag on demand.” Exports are a key pillar of China’s economy.

Even after the pandemic, China’s exports might face pushback from consumers globally due to its perceived mishandling of the virus initially.

Chinese stock markets rebound

Chinese stock markets rebounded sharply today after the May PMI data was released. Shares in Hong Kong also bounced back. Notably, US-China relations have soured more. China plans to impose its national security laws in Hong Kong.

Chinese stock markets are only down about 5% this year, while global stock markets are deep in the red. US stock markets have also outperformed global markets. The Nasdaq Composite Index (NASDAQ:QQQ) is positive for the year.