A private gauge of China's manufacturing fell back into contractionary territory in May, adding to recent evidence that the economy's strong start to 2017 is levelling off. The official report also suggested China's factory recovery was spreading to the smaller and nimbler private sector as price pressures on them abate. Caixin Media and Markit Economics manufacturing purchasing managers' index fell to 49.6 from 50.3 in April, the lowest reading since June 2016 Output fell to 50.2 vs 51 in AprilThe private measure -- with a smaller sample size -- contrasts with the government's PMI reading released Wednesday, which showed the manufacturing PMI was steady last month. China's policy makers are walking a tight rope, seeking to rein in excessive leverage in parts of the financial system while ensuring there's enough credit flowing to the real economy to keep growth humming. "However, given the need to meet other government priorities, most notably growth stability, we expect the government to constantly adjust the pace and magnitude of its supervisory tightening to strike a delicate balance."
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Here's why China's yuan spiked higher despite weak Caixin PMI data
Analysts said policymakers were likely signalling they didn't want the yuan to weaken further. Others also noted that the change likely signalled the recent downtrend in the yuan could be at an end. Other analysts also pointed to local banks stepping into the market to sop up yuan liquidity by selling dollars. The economists said they expect the yuan to continue to appreciate against the dollar, expecially if the greenback weakens more broadly. "The key implication of the change to the fixing regime though would seem to be that officials are determined not to allow sizeable depreciation."
China's Caixin PMI Dips Below 50 for First Time in 11 Months
The official report also suggested China's factory recovery was spreading to the smaller and nimbler private sector as price pressures on them abate. A private gauge of Chinese manufacturing fell back into contractionary territory in May, adding to recent evidence that the economy's strong start to 2017 is leveling off. "Input and output price gauges both fell below the 50 mark, adding to the evidence that China's factory reflation story is over," Orlik said in a note. Staff numbers were cut at a quicker rate and subdued demand underpinned a drop in purchasing activity. While economists project expansion will slow from 6.9 percent in the first quarter, they also expect it to exceed the government's 6.5 percent goal.
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