China's manufacturing PMI hits a new 8-month high

In May, China's official manufacturing purchasing managers' index (PMI) rose by 0.5 percentage point from the previous value to 51.9%, reaching its peak since October 2017. In May, the non-manufacturing business activity index was 54.9%, and the previous value was 54.8%, maintaining a stable expansion.
The following are some of the analysts' comments on this PMI data
Guotai Junan: economic acceleration in the second quarter
In May, the manufacturing PMI rose by 0.5 percentage points, reaching the high point since October 2017, which was in line with high-frequency data, reflecting the slight acceleration of current economic momentum. Among them, the blast furnace operating rate continued to rise, year-on-year growth rate (-6.7%) compared with April (-13.8%) has improved significantly; daily average coal consumption for power generation continued to rise, the growth rate (18.5%) compared to April (5.5%) The improvement was significant; as of May 10, average daily crude steel production in May increased compared to April, and its year-on-year growth rate accelerated from 4.1% in April to 7.3% in May.
PMI's major sub-items are fully improved. Among them, the new export order index and the import index were 51.2% and 50.9%, which were 0.5 and 0.7 percentage points higher than the previous month respectively. Both were located in the expansion range for three consecutive months, reflecting the steady growth of foreign trade. From the structural point of view, the support of the new kinetic energy continues to increase. The equipment manufacturing industry and high-tech manufacturing PMI were 53.0% and 54.8%, up 1.3 and 1.0 percentage points respectively from the previous month, and were consistently higher than the overall level of the manufacturing industry.
Follow-up, "good" is "bad." “Good” refers to the fact that the economic fundamentals are good. The “second quarter is the inflection point of economic downturn” that the market had previously considered is once again falsified, and the economic acceleration has been stagnated in the second quarter. “Bad” is that under the support of fundamentals, the degree of breaking the rigid payment and disposal of the breach may be more stringent. Follow-up should continue to focus on the spread of credit risk and the inflection point, the downward spiral of the financial cycle and the upward spiral of the economy, and the short-term asset price. Within or under pressure.
Huatai Securities: Manufacturing PMI rises mainly due to improved profits
The main reason for the increase in PMI this month was profit improvement. In April, profits of industrial enterprises increased by 21.9% year-on-year, which promoted enterprises to increase production. Looking at the size of the company, the PMIs of large and medium-sized companies rose by 1.1 and 0.3 percentage points to 53.1% and 51%, respectively; the small-sized companies went down to 49.6% and fell to the bottom line. The improvement of small business data in March and April of this year was mainly due to the better performance of the industry in surviving and survivors. This month’s price recovery has led to more significant improvements in large companies.
In the past two months, the industrial data once again demonstrated strong resilience, which is directly related to the recent increase in profits driven by the recovery of PPI, which in turn increases production. The logic of supply-side dominance still remains unchanged. In addition, from the perspective of improving total factor productivity, it is expected that national policies may increase investment in related high-end manufacturing industries such as computers, high-end pharmaceuticals, aerospace, military, semiconductors, communications (5G), etc. to hedge downward pressure on manufacturing.
We believe that industrial data will only temporarily rebound in the second quarter and will continue to decline after the third quarter, but the overall rate of decline will be slow. This year’s monetary policy has been steadily and flexibly adjusted to reduce long-term interest rates and reduce the cost of corporate bond financing. However, the recent increase in credit defaults on bonds will impact the bond market, and the trend of default may lead to difficulties in issuing debts in a region or an industry. In terms of entity financing pressure, this month's PMI survey showed that the proportion of enterprises with tight funds was 40.1%, which rose for three consecutive months.
Kyushu Securities: Obvious rebound in traditional industry
May PMI data exceeded market expectations, mainly due to the supply-side reforms and environmental protection efforts to slow down, the traditional industry boom has rebounded significantly, and new orders and new export orders have also rebounded, reflecting the continued improvement in domestic and foreign demand for manufacturing.
However, taking into account the current political turmoil in Europe, emerging market countries are more volatile, or become an important factor that further affects China's exports. In addition, supply factors such as supply-side reforms and slow release of limited production of environmental protection do not mean that the final demand will improve. The contradiction between the future production end and the demand end still needs to be observed.
Zhang Liqun, Researcher of the Development Research Center of the State Council: Manufacturing PMI increase in May has no trend significance
The slight increase in the manufacturing PMI index in May was a short-term fluctuation of the index in the boom period, which has no trend significance. The increase in the May working day compared with April may be one of the reasons. Since 2017, the PMI index has been fluctuating slightly above and below the line of weakness, which may be a new feature of its operation.
Among the sub-indicators, the increase in export orders index shows that the growth of exports has not changed since the beginning of this year; the increase in purchase prices and ex-factory price indices may indicate that the decline in the growth rate of PPI is approaching the end; the production index, purchase volume index, import index, and production Changes in the inventory index of finished products and raw materials indicate that the company’s production and business activities are relatively active.
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