May 29, 2018 / 6:36 AM / in 23 days

China's May manufacturing growth seen dipping only marginally

BEIJING (Reuters) - Growth in China’s vast manufacturing sector is expected to have dipped but only marginally in May, easing concerns of a slowdown in the world’s second-biggest economy as fears of a trade war with the United States ebbed.

Workers weld shipping container components at a container manufacturing company in Lianyungang, Jiangsu province, China May 29, 2018. REUTERS/Stringer

The official manufacturing Purchasing Managers’ Index (PMI) is seen slipping to 51.3 in May from 51.4 in April, according to the median forecast of 30 economists in a Reuters poll. The 50-mark divides expansion from contraction on a monthly basis.

That would mark the 22 straight month of expansion for China’s manufacturing sector, and reinforce consensus views that the economy will slow only modestly this year, good news for policymakers as they try to navigate debt risks and rocky trade relations with Washington.

Last week, Washington and Beijing both claimed victory as the world’s two largest economies stepped back from the brink of a global trade war and agreed to hold further talks to boost U.S. exports to China. U.S. Commerce Secretary Wilbur Ross will visit China this weekend for another round of talks.

Economic data for April had painted a mixed picture for China’s economy, with investment growth slowing to a near 20-year low and growth in retail sales sliding.

However, the industrial sector, a key source of jobs, remained healthy with profits growing at their fastest pace in six months, underpinned by continued strength in the steel sector.

China has been tightening controls on riskier investments, the shadow banking business and speculation in the property sector, but does not want to cut off funding to the real economy. It has cut electricity prices for industrial users by about 7 percent so far this year.

Separately, a private survey on China’s factory activity is forecast to show a similar easing trend, with some analysts warning that a growing number of credit defaults is pointing to mounting pressure on small and medium-sized firms, which have not benefited as much from a year-long construction boom as their larger, state-owned peers.

The private Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) is expected to have fallen slightly to 51.0 in May versus 51.1 in April.

New export orders in the Caixin PMI shrank for the first time in over a year in April as firms remained cautious of uncertain external demand.

The official PMI survey is due out on May 31, along with a similar official survey on services.

The private Caixin manufacturing PMI will be published on June 1, and the Caixin services PMI on June 5.

Despite a better-than-expected first-quarter, economists still expect China’s economic growth to slow to 6.5 percent this year from 6.9 percent in 2017, citing rising borrowing costs, tougher limits on industrial pollution and a crackdown on local governments’ spending to keep their debt levels in check.[ECILT/CN]

Reporting by Stella Qiu and Ryan Woo; Polling by Wang Jing and Shaloo Shrivastava; Editing by Kim Coghill

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