China industries expand a third time in May

01 June 2009 06:54  [Source: ICIS news]

SHANGHAI (ICIS news)--China’s manufacturing industry has expanded for the third consecutive month in May, buoying up hopes that the economy remains on a clear path to recovery, analysts said on Monday.

The country’s Purchasing Managers’ Index (PMI) posted a reading of 53.1% last month, down from 53.5% in April but well above the 50% threshold that indicates expansion, data from the China Federation of Logistics & Purchasing (CFLP) showed.

The PMI serves as the barometer of the monthly performance of China’s factories and is based on surveys from purchasing and supply managers at more than 700 manufacturers across the country.

The index for new orders in May was at 56.2% while the production index had a 56.9% reading, both lower compared to April’s numbers.

“All the indexes are above 50%, which means the economy will keep a recovery stance even in the second quarter,” said Wang Xiaoguang, an economist from the National Development and Reform Commission (NDRC) in a report.

These gains, however, may still be fragile since the indices slipped compared to April’s levels.

There are concerns that the recent spike in crude prices could slow the process of recovery for most economies as they were coming from a deep slump, some analysts said.

Crude prices trekking up to $80/bbl would start hurting consumer confidence, said Liu Binghong, an analyst from Shanghai-based Dalu Futures. He expects crude prices to rise to around $70/bbl in the next two months.

Ironically, it was the growing optimism that the global recession has started to bottom out that was largely driving crude prices higher.

China just adjusted its fuel prices twice since late March to take into account the continued uptrend in oil prices.

From 1 June, gasoline and diesel prices in China would cost yuan (CNY)400/tonne ($58.6/tonne) more at CNY6,130/tonne and CNY400/tonne, respectively, according to NDRC’s website.

The Chinese government adjusts fuel prices when crude oil costs swing by more than 4% over 22 working days under its new pricing formula that was adopted in December last year.

($1 = €0.71 / $1 = CNY6.83)

With additional reporting by Judith Wang

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