Positive signal being seen in manufacturing

China's manufacturing unexpectedly accelerated in May, indicating that a slowdown in economic growth in the first quarter may be stabilizing.

The Purchasing Managers' Index rose to 50.8 from 50.6 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing on June 1. That was higher than all estimates in a Bloomberg News survey of 30 analysts and compares with the median projection of 50, which marks the dividing line between expansion and contraction.

The report may provide some comfort to policy makers after the preliminary reading of a private manufacturing survey pointed to the first contraction in seven months.

"Given the mixed signals, I'd wait for the full set of activity data such as industrial production and electricity production to judge the momentum of the economy," said Zhang Zhiwei, chief China economist at Nomura Holdings Inc in Hong Kong. "The rise of the official PMI further reduces the chance for monetary policy easing."

The statistics bureau will release May industrial output, retail sales and inflation data on June 9 along with fixed-asset investment for the first five months of the year. The customs administration will report May trade figures on June 8.

The preliminary reading of a Purchasing Managers' Index released by HSBC Holdings Plc and Markit Economics fell to 49.6 in May from 50.4 in April.

The federation and HSBC will also release non-manufacturing surveys for May this week, providing a fuller picture of an economy that's increasingly reliant on service industries for growth. Both showed slower expansion in April.

President Xi Jinping said the fundamentals of the Chinese economy are "sound" and growth is on a "more stable footing", according to the English-language transcript of a written interview he gave to Latin America media released by the official Xinhua News Agency on May 31. "We are more interested in the quality and efficiency of economic growth rather than the speed of growth only," he said, noting that employment is stable and incomes are rising.

Xi's comments, made ahead of his visit to Trinidad and Tobago, Costa Rica and Mexico, reinforce signals from policy makers that the government is prepared to tolerate a slower pace of expansion after annual average growth of 10.5 percent in the past decade led to industrial overcapacity, rising financial risks and environmental degradation.

China's economy grew 7.8 percent in 2012, the slowest pace in 13 years. the government in March set a goal of 7.5 percent for this year. Last month, Premier Li Keqiang warned that room for stimulus policies and government investment to meet its targets "is not big" and that such action would create "new problems and risks".

There will be no "incremental stimulus by the new government which understands the slowing potential growth and wishes to focus more on structural reforms", said Lu Ting, head of Greater China economics at Bank of America Corp in Hong Kong, in a research note.

Stocks in China fell 0.7 percent on May 31 on concern the official PMI report would also show a decline. The Shanghai Composite Index rose 0.5 percent for the week and has rebounded 5.8 percent from this year's low on May 2.