Analysis of May PMI: Economy Showing Signs of Stabilization, Focus on Resilience of Foreign Trade Recovery

Core views: The manufacturing purchasing managers' index (PMI) in May was 49.5%, an increase of 0.5 percentage points from April. The marginal improvement in the manufacturing sector's business climate, but most sub-indices and some industries are still relatively low. The trend in the later period still needs to be observed, especially the slope and sustainability of foreign trade recovery. From the classification index, the production index is above the critical point, the supplier delivery time index is at the critical point, indicating that production activities and supply chain repair are good. The new orders index, raw material inventory index, and employment index are all below the critical point, reflecting insufficient effective demand. Looking at key industries, PMI in the high-tech manufacturing industry was 50.9%, maintaining expansion for four consecutive months, continuing a good development trend; PMI in the equipment manufacturing and consumer goods industries were 51.2% and 50.2%, respectively, an increase of 1.6 and 0.8 percentage points from the previous month, showing a general improvement in the business climate; PMI in the high-energy consumption industry was 47.0%, a decrease of 0.7 percentage points from the previous month, indicating low market activity. In terms of asset classes, the second half of the year may present a bull structure for stocks and bonds. On one hand, it is expected that Sino-US economic and trade relations may ease in the midst of fluctuations, while on the other hand, "pseudo-steady" funds serve as a backstop for tail risks, both of which will support market risk appetite. Overall, A-shares are expected to form a structured market with alternating low-volatility dividends and technology growth. In terms of fixed income, considering the low probability of large-scale domestic demand stimulus this year, the 10-year Treasury rate is expected to decline to around 1.5% during the fluctuation process. Zheshang's main points are as follows: Supply-side expansion focus in May In May, enterprise production stopped falling and rebounded, with an increase in raw material procurement activity. As export declines slowed and demand stabilized overall, manufacturing production activities also stopped falling and rebounded. The production index in May was 50.7%, an increase of 0.9 percentage points from April, quickly returning to the expansion zone after briefly falling below 50%. The procurement volume index in May was 47.6%, an increase of 1.3 percentage points from the previous month, with the import index at 47.1%, an increase of 3.7 percentage points from the previous month, indicating a significant narrowing of the decline in raw material imports compared to April. Looking at major industry categories, new industries' production activities maintained rapid growth, and consumer goods manufacturing production activities continued to stabilize and grow. The production index for the equipment manufacturing industry in May increased by over 4 percentage points from the previous month, surpassing 54%, maintaining above 50% for 10 consecutive months; although the production index for the high-tech manufacturing industry declined slightly by 0.2 percentage points from the previous month, it remained at a relatively good level of around 52%, also maintaining above 50% for 10 consecutive months; the production index for the consumer goods manufacturing industry rose by over 1 percentage point from the previous month, running in the expansion zone for 15 consecutive months. It is further emphasized that the policy focus on industrial stability and growth by 2025 may be concentrated on the equipment manufacturing industry, in line with the direction of new industrialization development. Major companies may be the core carriers of industrial stability and growth. According to the industry classification criteria of the National Bureau of Statistics, the equipment manufacturing industry includes eight major industry categories: 1) metal products industry, 2) general equipment manufacturing industry, 3) special equipment manufacturing industry, 4) automobile manufacturing industry, 5) railway, shipbuilding, aerospace and other transportation equipment manufacturing industry, 6) electrical machinery and equipment manufacturing industry, 7) computer, communication and other electronic equipment manufacturing industry, 8) instrument and meter manufacturing industry. The Ministry of Industry and Information Technology stated it would focus on promoting stable growth in the equipment manufacturing industry, planning for a new round of policies to promote stable growth of the equipment manufacturing industry, and promoting incremental measures. In April 2025, the electricity index for high-tech and equipment manufacturing industries was 157.4, an increase of 57.4% from the base period in 2020, with an average annual growth rate of 9.5%, and a year-on-year increase of 3.0%. Zheshang believes that since industrial production generally requires electricity and coal-fired power is the main support of China's power system, high-frequency data on coal consumption for power generation also have a strong signaling effect on production. According to the introduction by CHINA POWER Enterprises Association, the proportion of total coal-fired power generation in the total electricity generation in 2024 was 54.8%. Due to factors such as resources, hydropower and wind power fluctuate significantly on a monthly basis, coal-fired power plays a fundamental guaranteeing and system regulating role. Firstly, in May, due to below-average water inflows, lower-than-expected hydropower output, and temporary high temperatures, the electricity generation and coal consumption of coal-fired power plants increased significantly month-on-month, mainly in the eastern, central, and southern regions. Coal stocks at power plants continued to increase, with an expanded margin of increase. According to China Electricity Council's fuel statistics, as of May 22, the cumulative electricity generation of coal-fired power plants within the statistics increased by 1.9% year-on-year this month, but decreased by 6.8% year-to-date. The cumulative coal consumption of coal-fired power plants decreased by 0.5% month-to-date, and decreased by 6.2% year-to-date. Coal stocks at coal-fired power plants were 640,000 tons higher than the same period last year, with an increase of 0.6 days in the usable days of stock compared to the same period last year. High-frequency data for the week of May 16 to May 22 showed that the average daily electricity generation of coal-fired power plants included in the statistics increased by 12.3% week-on-week from the previous week (May 9 to May 15), and increased by 6.5% year-on-year; average daily heat supply decreased by 0.4% week-on-week and year-on-year. Coal stockpiles at power plants increased by 1.99 million tons to 111.92 million tons as of May 22. Among them, coal consumption by sea transportation plants increased by 15.3% week-on-week and 13.9% year-on-year; daily coal intake into plants increased by 24.6% week-on-week and 9.9% year-on-year. Secondly, by observing the data of the six major power generation groups (Zhejiang, Shanghai, Guangdong, Guodian, Datang, Huadian), it can be clearly seen that the demand for coal has warmed up in May. Influenced by weather and other factors, the increase in coal-fired power generation has driven the release of coal demand, and coal prices have also shown some signs of stabilization. As of May 29, 2025, the average daily coal consumption of the six major power generation groups was 781,900 tons, shaking higher from the 759,900 tons on April 30, 2025, easing the pessimistic sentiment accumulated in the market. Similarly, it can be seen that the daily coal consumption of southern power plants has also increased since May. Zheshang believes that with the arrival of nationwide high-temperature weather, daily coal consumption by coal-fired power enterprises is expected to gradually increase, which may drive the release of pre-summer peak coal demand.Release. From historical experience, the daily consumption of coal reaches its lowest point in mid-May. Every year, starting from early June, the daily consumption of thermal coal enters a phase of increasing trend. The rigid demand for thermal coal increases, and the daily consumption of thermal coal in the 17 inland provinces will increase from 3 million tons to 4 million tons. Before the peak season of summer, as the daily consumption increases, the daily consumption of coastal provinces will increase from 1.7 million tons to 2.4 million tons.Overall, logistics smoothness in May improved more than in April, reflecting the consolidated trend of stable economic growth. According to the monitoring and summarizing data of the Office of the State Council's Logistics Protection and Promotion Working Group, from May 19th to May 25th, the national railway transported a cumulative total of 77.76 million tons of goods, an increase of 1.24% from the previous period; the total number of trucks on national highways was 55.408 million, a decrease of 0.88% from the previous period; monitored ports handled a total of 271.348 million tons of goods, an increase of 2.8% from the previous period, with 6.564 million TEUs of containers, an increase of 3.63% from the previous period; civil aviation provided services for a total of 121,000 flights (including 4,956 cargo flights, including 3,289 international cargo flights and 1,667 domestic cargo flights), an increase of 0.55% from the previous period; postal and express services handled approximately 4.147 billion items, an increase of 1.97% from the previous period; and approximately 4.216 billion items were delivered, an increase of 6.41% from the previous period. In addition, there is a tendency to closely monitor the prosperity of key industries such as automobiles, chemicals, and steel. In the automotive industry, the main indicator tracked is the opening rate of automobile tire production. Tires can be categorized as all-steel and semi-steel, with all-steel tires typically used on commercial vehicles such as trucks and buses, while semi-steel tires are mainly installed on passenger vehicles. In the chemical industry, the focus is on the operating rate and capacity utilization of the upstream and downstream sectors of the industry chain of PTA (Pure Terephthalic Acid), which is used in the production of polyester, and subsequently in the production of polyester bottles, polyester fibers (such as polyester filament yarn and polyester staple fiber), and polyester film, with downstream applications involving packaging, textiles, electronics, and other industries. The steel industry chain has many tracking indicators, including blast furnace operation rate, crude steel output, and various steel product outputs. Looking at the automotive industry, in May 2025, the all-steel tire production rate slightly decreased to 59.17% (compared to an average of 65.1% in April 2025), while the semi-steel tire production rate fell to 73.12% (compared to an average of 79.21% in April 2025). In the chemical industry, the operating rate and production volume of PTA in May both slightly decreased compared to April, and the operating rate of polyester filament yarn and downstream weaving machines in the Jiangsu-Zhejiang region also decreased in May. Looking at the steel industry chain, the blast furnace operation rate (247 units) in May fluctuated higher to 84.14%, and steel enterprises' production showed a fluctuating upward trend. Stabilization of demand in May Overall market demand remained stable in May, with the new order index reaching 49.8%, up 0.6 percentage points from April. Zheshang believes that after reaching an agreement in the China-US-Japan-Geneva trade talks, the downward trend in China's manufacturing sector demand has slowed significantly, with some companies reporting accelerated restart of foreign trade orders. Combined with continued stable domestic demand, this overall performance points to a moderate recovery in manufacturing demand. It is recommended to pay attention to the impact of macroeconomic variables (such as government public investment) on total demand. Looking at major industries, demand growth in the new energy market was particularly prominent. The new order indices for the equipment manufacturing industry and the high-tech manufacturing industry in May were both above 52%, staying in the expansion zone for several months, with the new export order indices for the two industries rising by more than 5 and 3 percentage points compared to the previous month, respectively, reaching the expansion zone. In addition, demand in the consumer goods manufacturing industry also steadily increased, with the new export order index rising by over 6 percentage points from the previous month to the expansion zone, driving the new order index to rise by 1.6 percentage points to above 51%. On the domestic demand side, under the comprehensive policy measures, the effect of boosting consumption with old-for-new transactions in bulk consumption was particularly prominent. Recently, the General Office of the Communist Party of China Central Committee and the General Office of the State Council issued the "Special Action Plan to Boost Consumption", proposing to increase support for the exchange of consumer goods with old ones. Specifically, from 2025, the ultra-long-term special national bonds used to support the exchange of consumer goods with old ones will increase from 150 billion yuan in 2024 to 300 billion yuan. Firstly, on top of the 8 categories of household appliances eligible for old-for-new exchanges, new categories such as water purifiers, dishwashers, rice cookers, and microwaves will be added, expanding to 12 categories; secondly, subsidies for the purchase of three digital products - mobile phones, tablets, and smart watches (bracelets) have been added; thirdly, passenger cars meeting the National IV emission standard are included in the scope of car scrappage for renewal. According to the data from the Ministry of Commerce's home appliance old-for-new information system, from January to April this year, more than 34 million consumers participated in the exchange of 12 types of home appliances with old ones, with a total purchase of over 51 million units, driving sales of 174.5 billion yuan. In addition, as of May 22nd, 48.848 million consumers had purchased 51.483 million pieces of digital products such as smartphones, driving sales of 143.26 billion yuan. The automobile market in May showed a "high first, low later" trend. With the intensive initiation of car exhibitions across the country and the effects of the "May Day" holiday, the concentrated release of family car purchasing demand for self-driving tours and wedding seasons significantly boosted terminal traffic. According to preliminary calculations by the China Passenger Car Market Information Joint Committee (China Passenger Car Association), the total retail market for narrow passenger cars in May is estimated to be around 1.85 million units, an increase of 8.5% year-on-year and 5.4% month-on-month, with new energy retail expected to reach 980,000 units, maintaining a penetration rate of about 52.9%. The China Automobile Dealers Association's inventory warning index survey shows that in May 2025, the inventory warning index for automobile dealers in China was 52.7%, a decrease of 5.5 percentage points year-on-year and 7.1 percentage points month-on-month, indicating an improvement in the overall prosperity of the automotive circulation industry. Zheshang believes that despite the cautious sentiment brought about by the rapidly changing and complex international situation, the "old-for-new" policy for automobiles and local consumption promotion measures continue to exert efforts, maintaining a stable upward trend in the automotive market driven by policies. According to data from the Ministry of Commerce, as of May 11th, the number of applications for subsidies for old-for-new exchanges nationwide reached 3.225 million, with 1.035 million for scrapping and renewing cars and 2.19 million for replacement renewals. Since the implementation of the old-for-new policy for automobiles in 2024, the cumulative subsidy application volume has exceeded 10 million, providing strong support for the car market. In May, local car exhibitions were concentrated, and companies are taking advantage of this golden period...Jian actively implemented a series of terminal promotion policies such as "fixed price" and "interest-free" car financing plans. The terminal research results show that during the "May Day" holiday peak period, the level of terminal traffic soared significantly, and consumers' demands were concentrated and released.On the external demand side, the new export order index for May is 47.5%, an increase of 2.8 percentage points from the previous month. Importantly, the recovery of shipping capacity lags behind the explosive demand. Considering that the round trip cycle on the US East Coast route is around 85 days, the short-term gap is difficult to fill, and export-oriented enterprises have limited actual shipping time windows. Based on this, several shipping companies have announced rate increases for the Asia to US route, which is a result of the combined effects of changes in capacity and demand. Since mid-May, a considerable number of US businesses have been rushing to stock up during the 90-day tariff exemption window, significantly increasing freight demand in the short term and driving up freight rates. Evergreen Marine, Maersk Line, HMM, ONE, COSCO Shipping Holdings, and others have announced additional charges starting from the latter half of May. Prices for shipping containers will increase, with some companies planning to charge up to $2000 in peak season surcharges for every 40-foot container starting June 1. After the price hike, the freight for these companies' containers going to major west coast ports will return to the price level of $6000 per 40-foot container, while the transport cost for individual inland points of Mediterranean Shipping has already risen to $9700 per 40-foot container. Overall, foreign trade enterprises are cautious about new orders. Compared to the game of future freight rates, foreign trade enterprises are more concerned about the uncertainty of tariffs after the 90-day window. According to feedback from customs clearance agencies, booking volume is also showing a sharp increase. As reported by Xinhai Customs (Shanghai's largest customs clearance company), from May 14 to May 21, the company's declaration data for the US route has increased by 53% compared to the previous period. Currently, the cargo volume mainly consists of existing orders and inventory, with booking volumes increasing 2 to 3 times compared to before May 12. Slowdown in manufacturing prices in May The purchasing price index for May is 46.9%, a slight decrease of 0.1 percentage point from the previous month; the factory price index is 44.7%, also a slight decrease of 0.1 percentage point from the previous month, with both price indices showing a narrower decline compared to the previous month. Zheshang believes that the slight decline in price indices in May indicates that the market remains oversupplied, with relatively weak internal dynamics or some pressure on the economy. It is expected that the core of economic growth in the second half of the year may slightly decline. In general, it is estimated that the core CPI growth rate in 2025 will be around 0.5%, mainly reflecting the base effect resulting from the lower price level in the same period of 2024. Looking at the PPI base index, the probability of a positive year-on-year change in the PPI in 2025 is low, and the core year-on-year growth rate for PPI in 2025 is expected to be around -2.5%. Rebound in the seasonal growth of strategic emerging industries in May According to data jointly released by Zhongcai Consulting and the China Science and Technology Development Strategy Institute of the Ministry of Science and Technology, the Purchasing Managers' Index (PMI) for China's strategic emerging industries in May was 51%, a 1.6 percentage point increase from the previous month, significantly higher than the average month-on-month value over the past four years of -1.6 percentage points. This is mainly due to the recovery of exports in most industries starting in mid-May after interruptions, with the export order index in May increasing significantly to 49.5%, a 10.8 percentage point increase from the low level, reaching the highest level in five years for the same month. In terms of the timeline, the high-level economic and trade talks between China and the US took place in Geneva, Switzerland on May 10 to 11, with a joint statement released on May 12. This was followed by the EPMI survey time point, only a week after the peak of the tariffs, and the strength of replenishment has not fully appeared. More importantly, external demand has driven the overall demand and production recovery, with a relatively smooth economic cycle. In May, enterprise raw material purchases increased, labor conditions marginally improved, new economic sectors overall showed a trend towards improvement, but prices remained generally low. Purchasing and selling prices in May fell, and the short-term demand recovery is unlikely to push prices up. In particular, the selling prices were equal to those in August 2024, the lowest in nearly six years (since August 2019), and there is a high probability that enterprise profit margins will be squeezed. In addition, the launch of new products and research and development activities have experienced varying degrees of decline due to cost pressures and uncertainties in expectations, similar to the driving factors behind the slightly lower-than-expected fixed asset investment in April. It is worth noting that the EPMI covers the business dynamics of nearly 300 enterprises in seven major industries, including energy conservation and environmental protection, new generation information technology, biotechnology, high-end equipment manufacturing, new energy, new materials, and new energy vehicles. It is calculated by weighting five diffusion indices (sub-indices), with the weight for the new order index at 30%; production index at 25%; employment index at 20%; supplier delivery time index at 15%; and raw material inventory index at 10%. The supplier delivery time index is an inverse index, calculated in the opposite direction when synthesizing the composite PMI index. Expansion of non-manufacturing industry in May The business activity index for the non-manufacturing industry in May was 50.3%, a decrease of 0.1 percentage point from the previous month but still above the critical point, with the non-manufacturing industry continuing to expand overall. Overall, the non-manufacturing industry has continued to operate steadily within the expansion range in May, reflecting positive performance in recent investment, consumption, and export-related activities. Zheshang notes that as there is no composite index for non-manufacturing industries, the business activity index is commonly used internationally to reflect the overall changes in non-manufacturing economic development. A value above 50% reflects expansion, while a value below 50% indicates contraction. First, there was a slight rebound in the service industry in May. The service industry business activity index was 50.2%, a 0.1 percentage point increase from the previous month. During the "Labor Day" holiday period, resident tourism and dining consumption were more active, and the business activity index for industries such as railway transport, air transport, accommodation, and catering showed significant increases, all within the expansion range, indicating increased market activity. Meanwhile, industries such as postal services, telecommunications, broadcasting, internet software, and information technology services continued to have a business activity index above 55.0%, maintaining a good growth momentum. Secondly, the construction industry continued to maintain an expansion trend in May.Expansion is slowing down. The business activity index for the construction industry is 51.0%, a decrease of 0.9 percentage points from the previous month, indicating a slight slowdown in expansion. Among them, the business activity index for civil engineering construction industry is 62.3%, an increase of 1.4 percentage points from the previous month, showing a continuous rise for two months, indicating that construction projects in various regions continue to accelerate. With the agreement reached in the Geneva economic and trade talks between China, the United States, and Japan, overseas demand related to infrastructure and water transportation has been released, driving industry activity to a noticeable rebound. In May, the new export order index for civil engineering construction industry rose to over 60%, with a significant month-on-month increase, indicating a concentration of overseas demand for infrastructure related projects and an increase in related activities.The comprehensive PMI output index in May continued to stay in the expansion zone. The comprehensive PMI output index in May was 50.4%, up 0.2 percentage points from the previous month, indicating that the overall production and operation activities of Chinese enterprises continued to expand. The manufacturing production index and non-manufacturing business activity index that make up the comprehensive PMI output index were 50.7% and 50.3%, respectively. Zheshang reminds that the comprehensive PMI output index is a comprehensive index in the PMI indicator system that reflects the current output changes in the entire industry (manufacturing and non-manufacturing), calculated by weighting the manufacturing production index and non-manufacturing business activity index based on the respective proportions of manufacturing and non-manufacturing in GDP. Zheshang predicts that the economy is expected to maintain a stable momentum in the second half of 2025, but compared to the first half of the year, the overall performance will gradually slow down as demand is front-loaded. Early countercyclical policies will gradually take effect to provide support to the fundamentals. Economic growth may slow marginally in the second and third quarters, with GDP growth of around 5.2%, 4.8%, and 4.7% in the second, third, and fourth quarters respectively. Achieving the GDP growth target of around 5% for the whole year is relatively low difficulty. Quantitative models suggest that GDP growth of around 5.0% is possible for the full year 2025. Risk Warning: Fluctuations in international commodity prices; stronger-than-expected intensity of major power play; unexpected escalation of the geopolitical situation in the Middle East.