The PMI’s sub-indices for new orders and new export orders both tipped back into contraction after two months of growth, while employment continued to shrink.
The services sub-index under the NBS non-manufacturing survey improved to 50.5 in May from 50.3 in April. But growth as represented by the broader services index, which also includes construction, slowed in May to 51.1 from 51.2 a month prior.
Problems in the property sector have had a negative impact across broad areas of China’s economy and slowed Beijing’s efforts to shift its growth model more towards domestic consumption from debt-fuelled investment.
Retail sales last month grew at their slowest since December 2022 while new home prices fell at their fastest rate in nine years, suggesting it is too early to say if the battered economy has finally turned a corner.
The International Monetary Fund on Wednesday revised up its China growth forecast by 0.4 percentage points to 5 per cent for 2024 and 4.5 per cent in 2025, but warned the property sector remained a key growth risk.
China this month unveiled “historic” steps to stabilise the property market, but analysts say the measures fall short of what is required for a sustainable recovery.
The IMF said it saw “scope for a more comprehensive policy package to address property sector issues”.
Nie Wen, an economist at Shanghai Hwabao Trust, said the decline reinforced the case for more support.
“There is still a need to strengthen stimulus on the demand side, while at the same time sorting the credit channels as soon as possible to avoid financial institutions’ balance sheets shrinking, which would have a negative effect on the economy,” Nie said.
