China's factory activity was flat in May, according to an official survey released Sunday, raising concerns about the resilience of the country's economy in the face of ongoing global challenges, including the Iran war and subdued domestic demand [1]. The official manufacturing purchasing managers index (PMI) moderated to 50 from 50.3 in April, signaling stagnation in factory activity as a reading above 50 indicates expansion and below 50 reflects contraction [1]. Key sub-indices also showed weakness: the new orders sub-index dropped to 49.9 from 50.6 in April, production edged down to 51.2 from 51.5, and raw material stockpiles fell to 48.6 from 49.3 [1].
Despite the global energy shock caused by the Iran war and the closure of the Strait of Hormuz, China has been less affected than other countries due to its ample oil reserves and diversified energy sources [1]. Frederic Neumann, Chief Asia Economist at HSBC, noted that China is relatively shielded from the energy crisis thanks to its robust energy security set-up [1]. However, domestic demand remains sluggish, largely due to a prolonged property sector slump that has dampened consumer confidence and investment [1].
Exports continue to play a crucial role in supporting China's broader economy. While exports to the United States have declined year-on-year for most months in the past year, global exports—especially to Europe and Southeast Asia—have remained robust [1]. There is renewed optimism for a recovery in U.S. exports following a mid-May summit between President Donald Trump and Chinese leader Xi Jinping, which resulted in an agreement to establish separate boards of trade and investment [1]. Autos, technology, and artificial intelligence-related exports have been key drivers of export growth, though concerns persist about the overall economic outlook [1].
Chinese leaders have set an annual economic growth target of 4.5% to 5% for this year, the lowest since 1991, but only slightly lower than the “around 5%” target set for 2025 [1]. Morgan Stanley projects that China will likely meet its 2026 target, but emphasizes that oil prices and the resolution of uncertainties surrounding global oil supplies will be critical factors influencing future economic performance [1].
CONCLUSION
China's factory activity stagnated in May, reflecting ongoing challenges from weak domestic demand and global uncertainties. While robust exports and energy security have helped cushion the economy, analysts highlight that future growth will depend on oil prices and the easing of global supply disruptions. The market remains cautious, with medium impact expected as China strives to meet its growth targets.