China factory PMI growth holds up in May, steel sector activity speeds up

BEIJING (Reuters) - China manufacturing sector grew faster than expected in May as activity in the steel industry rebounded sharply, an official survey showed on Wednesday, allaying concerns of slowing economic momentum as Beijing cracks down on financial risks.

The National Bureau of Statistics' official Purchasing Managers' Index (PMI) held up at 51.2 in May, in line with April's number, which was the lowest in six months.

Analysts polled by Reuters had predicted a reading of 51.0, the tenth straight month above the 50-point mark that separates growth from contraction on a monthly basis.

New orders kept pace with April at 52.3, with export orders firming a touch by 0.1 percent point to 50.7, suggesting external demand held up.

Production in the month stayed within the expansionary territory, though growth eased to 53.4 compared to last month's 53.8.

Activity in China's steel industry expanded at the fastest pace in a year in May, supported by an increase in new orders, a separate survey showed, suggesting still-solid demand in the construction sector.

The overall results of the survey should soothe concerns of slowing momentum in the world's second-biggest economy as authorities crack down risky lending to curb financial risks. Official data showed on Saturday profits earned by Chinese industrial firms slowed to its weakest in four months in April.

Businesses attributed the slowing profit growth to falling prices of finished product and raw material costs, the stats bureau said.

Those worries were inflamed last week when Moody's Investors Service downgraded China's credit ratings for the first time in nearly 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.

China's economy grew a faster-than-expected 6.9 percent in the first quarter, boosted by higher government infrastructure spending and a gravity-defying property boom.

But property sales growth slipped in April and a strong rebound in commodity prices appears to have peaked, pointing to a continued slowdown in the industrial sector.

The PMI survey showed the employment sub-index rose to 49.4 from 49.2 in April, while the raw materials inventories sub-index was 48.5, compared to April's 48.3.

However, the input price sub-index fell to 49.5, after falling to 51.8 in April, as the tailwind from a commodities boom weakens. Output prices also slipped to 47.6 from April's 48.7.

Growth in China's services sector also accelerated to 54.5 in May, compared with the previous month's reading of 54.0.

Beijing has been treading cautiously to contain financial risks and a buildup in debt while maintaining economic growth, but analysts are sceptical other sectors of the economy will be able to pick up the slack if the property market slows.

On whole, however, they don't expect GDP growth to slow sharply this year, noting the government is keen to maintain stable economic and financial conditions heading into a key political leadership reshuffle later in the year.

(Reporting by Elias Glenn and Yawen Chen; Editing by Shri Navaratnam)