Surprise bounce in China's construction sector

China's giant manufacturing sector improved marginally in May, due to a surprise increase in orders from the construction sector and the country's best export performance this year. The official government-backed Purchasing Managers Index was in-line with expectations on Monday, rising 0.1 points to 50.2 points.

"The recovery has been stabilised," said a spokesman for the China Federation of Logistics and Purchasing which publishes the index.

The result was driven by a surprise bounce in orders from the construction sector, which has been suffering from falling prices and over-supply for much of the last year. The property new orders index has risen for the last four months and sits at 48.4 points. This should provide some cheer to battered iron ore miners, as property accounts for around one third of all steel demand in China.

New exports orders put in their best performance this year with the sub-index rising 0.8 points to 48.9 points. A figure below 50 indicates the sector is operating at levels below its long term average.

The official PMI gave a more optimistic outlook than the HSBC Flash PMI released in the middle of May. It bounced off a 13 month low, but showed a weakening of export orders and domestic demand remaining tepid.

In an effort to boost the weakening economy, China has cut interest rates three times over the last six months and reduced the amount of capital banks must keep aside twice this year.

While further monetary easing is expected over the next year Beijing is also focusing on targeted stimulus measures to ensure economic growth remains around 7 per cent this year. Last month the National Development and Reform Commission approved 6 rail projects worth 244 billion yuan ($49 billion).

source:afr.com