BEIJING (Reuters) -China's factory activity grew the fastest in about two years in May due to production gains and new orders, particularly at smaller firms, a private sector survey showed on Monday, lifting the outlook for the second quarter.
The Caixin/S&P Global manufacturing PMI rose to 51.7 in May from 51.4 the previous month, the highest since June 2022, and beating analysts' forecasts of 51.5. The 50-point mark separates growth from contraction.
To counter soft domestic demand and a years-long property crisis, China has boosted infrastructure investment and ploughed funds into high-tech manufacturing to bolster the broader economy this year.
However, the full effects of its industry policy support have yet to be felt by businesses and workers.
The upbeat Caixin PMI contrasts with an official PMI survey on Friday that showed a surprise fall in manufacturing activity.
The divergent indicators combined with other mixed data suggest the economic recovery is struggling to sustain momentum in the second quarter.
"The key question is whether China's exports will continue to hold up well in the coming months," said Zhou Hao, economist at Guotai Junan International.
"The export orders index dropped significantly in the official PMI but remained relatively resilient in the Caixin PMI."
The Caixin survey is believed to be skewed more towards smaller, export-oriented firms than the much broader official PMI.
According to the Caixin survey, output rose at the fastest pace since June 2022, with firms in the consumer segment reporting sharp growth in May.
Production was underpinned by higher new work inflows, as stronger domestic and global demand supported client interest in new products, according to respondents.
Thanks to some improved economic indicators and fresh policy steps in the first quarter, the International Monetary Fund last week lifted its forecast on China's 2024 economic growth to 5% from an earlier forecast of 4.6%.
But that was still below a previous IMF forecast for 5.2% growth.
Rating agency Moody's (NYSE:MCO) raised its 2024 China growth forecast to 4.5% on Monday from 4.0%, while retaining its projection for 2025 at 4.0%.
The outlook for China's trade remained volatile due to a lacklustre global economy.
According to Caixin, new export orders grew at a much slower pace in May, coming off April's 41-month high.
Some survey respondents said recent trade fairs had led to new work, while others referred to their strategic expansion into overseas markets.
To meet ongoing production requirements, factories stepped up their purchasing activity, with the quantity of purchases accelerating at the fastest pace in three years.
Sentiment among producers improved from April as they expected market demand to improve both at home and abroad.
Rising metals, plastics and energy prices led to an increase in average input costs. The rate of input price inflation was the highest since last October.
However, employment remained weak, staying in contractionary territory for the ninth consecutive month. The rate of job losses slowed, with makers of consumer goods even recording a slight rise in staffing levels.