China factories hum despite shadow of debt uncertainty

China's industrial engine cranked up again in May, reassuring investors worried about slowing growth in the world's second-biggest economy as it grappled with debt risks and tried to shake off a stinging ratings downgrade from Moody's Investors Service.

Moody's sees an improving global outlook even as it warned of a slowdown in China later in the year as liquidity-tightening measures take effect.

The ratings agency said the biggest risks to global growth, including protectionism and European Union exits, seemed to have subsided, although an opinion poll in Britain pointed to the danger of a hung parliament in elections next week. Moody's expects 2017 growth for China at 6.6 per cent, in line with the official target of at least 6.5 per cent.

China's official Purchasing Managers' Index eased worries about a sudden slowdown after a run of weak readings of April data. The PMI was at 51.2 in May, compared with April's 51.3 and forecasts of 51.0 in a Reuters poll.

"The latest official PMI readings add to broader evidence that downward pressure on growth has eased lately," said Julian Evans-Pritchard, China Economist at Capital Economics. "Looking ahead, however, we suspect that the current stability... will prove temporary. With the regulatory crackdown on financial risks still weighing on credit growth, it will be difficult to avoid a further slowdown in the coming months."

Private surveys on factory activity for most Asian economies will be released today.

Chinese stocks, edged higher and the onshore yuan hit a four-month high against the dollar.

Activity in China's steel industry grew at the fastest pace in a year in May, supported by an increase in new orders. The steel sector PMI rose to 54.8 from 49.1 in April, climbing above the 50-point mark that separates growth from contraction.

Trade headwinds remain a risk, with US President Donald Trump's administration keen to tackle what it regards as China's "unfair and illegal" sales of underpriced steel.

The steel sector helped drive China's strong first-quarter growth, but the reliance on the investment-led model has raised questions about whether it will be sustainable given official pledges to cut debt levels of nearly 300 per cent of GDP.

Source: Khaleej Times