Survey finds China manufacturing shrank in May

Labourers work in a clothing factory in Huaibei, north China's Anhui province on May 23, 2013. Manufacturing activity in China contracted in May for the first time in seven months, HSBC said on May 23, in another sign of the weakness of recovery in the world's second-largest economy. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)
AFP

HONG KONG China's manufacturing shrank slightly last month, a report said Monday, adding to signs of an uncertain recovery in the world's second-biggest economy.

HSBC's monthly purchasing managers' index fell to 49.2 in May. That's down from 50.4 in April. Readings below 50 indicate a contraction.

It's the first time the index has fallen below 50 since October, although the report said the deterioration was "marginal."

The survey is based on responses from 420 manufacturing companies.

The survey suggests "a marginal weakening of manufacturing activities towards the end of May, thanks to deteriorating domestic demand conditions," HSBC economist Qu Hongbin said in a statement. "With persisting external headwinds, Beijing needs to boost domestic demand to avoid a further deceleration of manufacturing output growth and its negative impact on the labor market.

The report adds to signs that China's economic recovery is losing momentum.

Economic growth in China slowed unexpectedly in the first three months of the year, dipping to 7.7 percent from the 7.9 percent in the previous quarter. Forecasters have cut their growth outlooks for this year.

A similar survey released Saturday found manufacturing ticked up slightly. That report by the government-sanctioned China Federation of Logistics and Purchasing found manufacturing edged up to 50.8.

The contrasting reports could be a sign of a two-speed recovery.

Bigger companies and ones that cater to China's domestic market are more strongly represented by the official PMI while smaller private companies focused on exports are better covered by HSBC and research firm Markit's report.