China: Steady economic activity in May – Standard Chartered

China’s official manufacturing PMI increased by 0.5ppt to 51.9 in May, the highest since September 2017, which suggests solid production activity, according to analysts at Standard Chartered.

Key Quotes

“The production sub-index edged up 1ppt to 54.1 on solid demand. The PMI for new orders and new export orders picked up to 53.8 and 51.2, respectively. We expect industrial production (IP) to have remained resilient, growing 6.9% y/y in May, faster than the Q1 average of 6.8%. Non-manufacturing PMI rose to 54.9 in May as the services sector performed strongly. Retail sales growth likely improved to 9.9% y/y, helped by the May Day holiday. Infrastructure investment may have picked up as the authorities urged effective budget implementation. Fixed-asset investment (FAI) growth likely stayed firm at 7.0% y/y YTD.”

“CPI inflation likely increased to 1.9% y/y in May from 1.8% in April on higher non-food inflation, which was likely driven by an increase in travelling and transportation expenses during the May Day holiday and rising global oil prices. We expect PPI inflation to have risen further to 4.3% y/y in May, based on interim data. The latest producer output price PMI rose to a five-month high.”

“We expect FX reserves to have fallen to USD 3.105tn in May mainly due to unfavourable FX valuation effects. Trade performance may have remained solid, with both exports and imports growing in double digits. We therefore expect the trade surplus to have widened to USD 33bn. M2 growth likely accelerated to 8.8% y/y from 8.3% in April.”

“The reserve requirement ratio (RRR) cut in April increased the money multiplier, and the central bank also net injected liquidity through open-market operations (OMOs) during the month. Chinese yuan (CNY) loans and total social financing (TSF) growth may have both inched up in May.”