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 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.
"This shows stabilization in economic growth," Zhang said.
BETS ON MORE AGGRESSIVE EASING
China's economy has sputtered this year as a cooling housing market
and slowing growth in exports, domestic investment and consumption
knocked growth to a six-year low of 7 percent in the first three
months of the year.
In addition, a frothy Chinese stock market that has nearly doubled
<.CSI300> in the last 18 months is feeding concerns that easier
credit policies are driving up share prices and fuelling
speculation, drawing money away from real economic activity and
further complicating policy making.
While official surveys tend to center on larger, state-owned firms,
a private survey that focuses on small and mid-sized factories
showed growth shrank for the third straight month as export orders
fell at the sharpest rate in nearly two years.
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The final HSBC/Markit PMI stood at 49.2 in May, little changed from
a preliminary reading of 49.1, and up a touch from April's 48.9.
"Five months into 2015, the economy sees little sign of a pickup,"
HSBC said in a note on Monday, adding that an index created by the
bank suggests that monetary conditions in China have tightened.
"We forecast more aggressive policy easing, including a
50-basis-point reserve ratio cut in the coming weeks," HSBC said.
As the economy cools, the country has fought persistent deflationary
pressure, which has in turn kept real interest rates stubbornly
high.
Morgan Stanley said in a report this month that real interest rates
in China are over 3 percent, well above real rates in Japan, Europe
and the United States, where borrowing costs are negative.
Given that China's flurry of policy easing has yet to arrest its
economic downturn, an economist at a state think-tank warned over
the weekend that the world's second-biggest economy is unlikely to
rebound soon.
Instead, he said growth would stabilize at a lower level and at best
track a "L-shaped" trajectory.
China's economic growth is expected to slow to a quarter-century low
of around 7 percent this year from 7.4 percent in 2014.
As the first major indicator that is released each month, China's
official manufacturing PMI is closely watched by investors for clues
about the health of the Chinese economy.
(Editing by Kim Coghill)
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