China’s economy is flat-lining by its own standards, although many a country would take its 7%-8% growth rate. The latest measure of factory activity, HSBC’s purchasing managers’ index for May, came in at 49.2, down from April’s 50.4. This is the first time in seven months that it has fallen below the 50 level that delineates expansion from contraction.
The number was slightly worse than the flash, or preliminary, reading of 49.6 a week ago. The full month number does nothing otherwise to change the implication that the modest expansion of manufacturing activity that has been seen since the slowing economy started to pick up steam again last autumn has been replaced by modest contraction, or that the weakness seen by China’s manufacturers in global demand for their goods and services has spread to their domestic customers.
Similarly, policy makers are likely not to make any significant change to fiscal or monetary policy, especially as home price increases are starting to show some slowing in response to measures to cool the property market. While there is little evidence of any recovery in growth in the second quarter, and limited prospects for a pick-up in activity in the third, neither are there signs that the economy is about to deteriorate sharply.